CPCU 556 Recollection and Recognition Reinforcement Training. Educational Funding

1. Donna M. Kesot, CPCU, Copyright 2012 . All Rights Reserved, 5-2-2012

2. Education Tax Credits Tax Miscellaneous
Treatment
100 100 100 100
200 200 200 200
300 300 300 300
400 400 400 400

3.  Name 5 Factors affecting Cost of
Education

4. What is
1. Type of program (undergrad, grad., etc.)
2. Type of institution (public, private,
community college, ivy league, etc.)
3. Years involved
4. Residency of student
5. Employment status of student
6. Scholarships & financial aid
7. Room, Board, including utilities if off campus
8. Transportation
9. Incidental Expenses like: Entertainment
expense, Clothing, Other Personal Services
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5.  Two Major Educational Tax Breaks

6. What are
 Hope Scholarship Credit
› 1st Two Year of college
› 100% 1st $1000, 50% next $1000 in qualified
fees/tuition
› Reduced by scholarship/fellowships exempt
from tax
 Lifetime Learning Credit
› 20% of up to $10,000 annuall
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7.  7 Federal Exclusions from Income, Gift, or
Penalty Taxes

8. What are Daily
1. Earning from qualified tuition programs Double
2. Earnings from education savings 600 points
accounts
3. Interest of certain U.S. Savings Bonds
4. Amounts up to $5,250 per employee
5. Amounts of scholarship & fellowship
grants to degree candidates used for
books, equipment, fees & supplies
6. Distributions of regular IRAs before age 59
½ for eligible education expenses are
not subject to 10% penalty
7. Unlimited gift tax exclusion for tuition
directly to education organization Home

9.  Two Federal Income Tax Deductions

10. What are:
1. Student Loan Interest Deduction
1. Interest paid on qualified student loans
2. $2,500 maximum
3. Phases out with adjusted gross income of $50,000 (single)
and ($100,000 married filing jointly), and completely
phased out at AGI $130,000.
2. Deduction for Higher Education Expenses
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11.  American Tax Opportunity Credit

12. What is the American opportunity credit? For
2012, you may be able to claim an American
opportunity credit of up to $2,500 for qualified
education expenses paid for each eligible
student.
 Unlike a deduction, which reduces the
amount of income subject to tax, a credit
directly reduces the tax itself.
 Forty percent of the American opportunity
credit may be refundable. This means that if
the refundable portion of your credit is more
than your tax, the excess will be refunded to
you.
 Up to 4 years
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AGI max: $180,000 if married filling jointly; $90,000 if
single, head of household, or qualifying widow(er)

13.  Hope Credit

14.  For a taxpayer to claim the Hope Credit, the student for whom you
pay tuition and related expenses must be an eligible student. To be
an eligible student, generally, the student must:
 Not have had expenses that were used to figure a Hope Credit in
any 2 earlier tax years.
 Not have completed the first 2 years of postsecondary education
(generally, the freshman and sophomore years of college) before
this tax year.
 Must have been enrolled at least half-time in a program that leads
to a degree, certificate, or other recognized educational credential
for at least one academic period beginning in the tax year.
 Must have been free of any federal or state felony conviction for
possessing or distributing a controlled substance as of the end of the
tax year.
Daily Double 400 points Home

15. Lifetime Learning Education Credits

16. What is for 2011/2012, you may be able to
claim a lifetime learning credit of up to
$2,000 for qualified education expenses
paid for all eligible students?
 There is no limit on the number of
years the lifetime learning credit
can be claimed for each student.
 The lifetime learning credit is a
nonrefundable credit. This means
that it can reduce your tax to zero,
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but if the credit is more than your
tax the excess will not be refunded
to you.

17.  This happens when a student with a 529
decides to go out of state for college

18. What is there is no locking in of tuition?
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19.  Earnings from the assets in a Qualified
Tax Plan (QTP)

20. What is Not Taxable?
QTPs will also not be taxed on distribution if
they are used to pay for qualified higher
education expenses, i.e., qualified
distribution
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21.  529 Plans Definition

22.  What are state programs that may be 529
savings accounts (or 529 saving account
programs =prepaid tuition trusts)
 Aka Qualified Tuition Program (QTP)
 Purchase credits or certificates for a
designated beneficiary for tuition and fees
for a given number of academic periods or
course units at the current tuition rates
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23.  529 Contributions Tax Treatment

24. What are:
 Not deductible for federal tax but
considered completed gifts from account
owner to designated beneficiary, i.e. no
federal gift tax no GST
› Can be front loaded for 5 years ($11,000 annual
exclusion)
 May be deductible for state income tax for
residents of the state up to the state
allowed limit?
Home
Daily Double = 600 points

25.  Grants

26.  What are financial aid that does
not need to be repaid?
 Based on demonstrated need
according to FAFSA & EFC
calculation
 Pell Grants are designed for low
and middle income
› Have not yet achieved Home
bachelor/professional degree

27.  Expected Financial Contribution

28. What is EFC, a measure of a family’s
financial strength determined in the FAFSA
(Free Application for Federal Student Aid?
EFC = Expected Parent Contribution +
Expected Student Contribution
A financial index derived from the income,
assets, and other household information
reported on the FAFSA used to determine a Home
student’s level of eligibility to receive federal,
state, and institutional financial aid

29.  Coverdell Educational Savings Account

30. What is a custodial savings account called
an Education Individual Retirement
Account (IRA) whose earnings grow tax-
free on behalf of a minor beneficiary if
used to pay for primary, secondary, or post
secondary education expenses?
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31.  Asset reducing strategies

32. What are:
Spend liquid assets & savings
Pay for college with student assets first
Sell assets with capital gains before FAFSA
Make major cash purchases now
Pay off loans and credit debgt with cash assets
Minimize savings levels
Increase funding to annuities
Pay down mortgage on primary residence
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33.  Series EE and Series I Savings Bonds

34. What are
 Series EE--A US savings bond sold in demoninations of
$50 to $10,000, with the purchase price being 50% of
the face amount (e.g. issued at a discount &
redeemable at face value at maturity)
 Series I—A nonnegotiable US Treasury obligation that
pays investors a composite fixed rate plus an
inflation-based rate of return that is adjusted
annually and is issued at face value
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