module 8 financial planning

Assume Craig wants to save $50,000 (in today's dollars) for his son's college expenses in 5 years. Craig is comfortable using an inflation rate of 4% and an investment rate of return of 8%. Calculate the serial payment that Craig will make at the end of the third year.

$10,415.99

John Hedrick wants to pay one-half of the college costs for his daughter, Ruth. She will be attending a private college with annual costs of $20,000 today. Ruth is 10 years old and will be starting college in eight years. If these costs are expected to increase annually by 8%, how much will Mr. Hedrick need to provide for her first year of college?

$18,509 Explanation The answer is $18,509. You are just being asked to arrive at the inflated value of one-half of the first year's tuition payment. As such, this becomes a simple future value calculation with the following keystrokes: 8 N; 8 I; 10,000 PV (1/2 of $20,000); FV = $18,509. LO 8.1.1

Calculate the lump sum necessary to fund Evelyn's college attendance.

$275,335.68 Explanation The answer is $275,335.68. Step 1: Determine the future cost of college for the first year. 32,500 +/- PV 4.75 I/YR 17 N Solve for FV = 71,532.2522, or $71,532.25 Step 2: Determine the account balance necessary to fund college education. BEG mode (money is needed at the beginning of college) 71,532.2522 +/- PMT 2.6253 I/YR [(1.075 ÷ 1.0475) - 1] × 100 = 2.6253 4 N Solve for PV = 275,335.6808, or $275,335.68 LO 8.2.2

Your client's oldest daughter will attend college 10 years from today. She will need $15,000 at the beginning of each academic year for 4 years. This cost has been guaranteed and will not increase in the period before or during college. What amount will your client need to deposit at the beginning of each month, starting now, to fund the daughter's college education if an 8% annual rate of return (compounded monthly) can be earned on these funds? Assume deposits into the education fund stop when the daughter starts college.

$291.35

Troy and Samantha would like to plan for their daughter's college education. They would like their daughter, who was born today, to attend a public university for 4 years beginning at age 18. Tuition is currently $15,000 a year and has increased at an annual rate of 6%, while inflation has only increased at 2.5% per year. They can earn an investment rate of return of 9%. How much must they save at the end of each year if they would like to make the last payment at the beginning of their daughter's first year of college? (Round to the nearest dollar.)

$3,979

Ryan's son, Anthony, turned 6 years old today. He has plans for Anthony to attend a 4-year private university at age 18. Currently, tuition is $46,500 per year and is expected to increase at 6.5% per year. Ryan can earn an annual compound investment return of 9%. Calculate the lump sum that he needs on Anthony's first day of college to be able to pay for his entire college education.

$382,594.77

Mike and Mona had a baby boy two months ago. They want to invest a lump sum today that will provide for four years of education when he starts college at the age of 18. State College costs $12,000 annually today, and they believe education inflation will remain constant at 6% and that they can receive a 7% return on their investment. What is the amount they would require?

$39,971

Jack and Barb have two children, Matt, age three, and Charity, age five. They want to invest a lump sum today that will provide for four years of education when Matt starts college at the age of 18. State College costs $14,000 annually today, and they believe education inflation will remain constant at 6% and that they can receive a 7% return on their investment. What is the amount they would require?

$47,965

Albin and Marielle would like to establish a Section 529 plan for their granddaughter, Amelie. They want to fund the plan with a one-time contribution in 2021 using gift splitting. What is the maximum contribution they can make to the plan in 2021 without any gift tax consequences?

$75,000

Alice and Mitchell would like their newborn, Paloma, to attend college at Northern State University at age 18 for 4 years. Your planning firm has determined that the total amount needed to fund Paloma's entire college attendance is $175,000. Calculate the amount of the quarterly deposits into a 529 with an expected annual return of 9%.

$993.52

All funds within a Coverdell Education Savings Account (CESA) must be used before the student reaches what age to avoid income taxation and a penalty on the earnings of the account when disbursed?

30 Explanation The answer is 30. All funds within a CESA must be used before the student reaches age 30. Any remaining funds will be disbursed to the CESA beneficiary, and the earnings will be subject to income tax and a 10% penalty. LO 8.2.3

Margaret, age 28, has been working full-time for a veterinary clinic and is also taking classes on a part-time basis in pursuit of her master's degree in fine arts. Her employer, Dr. Charles, offers reimbursements for qualified expenses through an Educational Assistance Program. This year, Margaret has incurred the following educational expenses: Tuition: $4,500 Lab coats: $100 Science lab Fee: $100 Enrollment Fees: $500 Books and Supplies: $900

5,250

Which of the following statements concerning educational tax credits and savings opportunities is CORRECT?

A parent who claims a child as a dependent is entitled to take the American Opportunity tax credit or lifetime learning credit for the educational expenses of the child

Which of the following should be determined when creating an education funding plan?

All of these

Susan is applying for college financial aid using the Free Application for Federal Student Aid (FAFSA). For purposes of calculating the expected family contribution (EFC), assets titled in whose name are assigned a higher weighting?

Assets titled in Susan's name

Tom and Samantha have a modified adjusted gross income of $195,000 in 2021 and file a joint tax return. They want to know what combination of available funds and tax benefits they can use to offset their daughter's higher education expenses. Which of these choices is CORRECT?

Coverdell Education Savings Account (CESA) and Section 529 plan.

Donnie is a director of operations at an alternative investment group. He is taking part-time evening classes to obtain a Master of Finance degree through an online college. This year, he incurred $10,000 in qualified educational expenses. Identify the program or credit(s) that Donnie could use to offset his expenses this year.

Employer-provided assistance program + Lifetime Learning Credit

The Keaton family has decided to invest $375 each month into a 529 for their newborn daughter, Annie. Ideally, Annie will attend the Keatons' alma mater, Central State University. The current tuition is $15,000 per year, education inflation is expected to be 5.25%, and the anticipated rate of return on their 529 is 8%. Annie will attend school beginning at 18 years old for 5 years. Using these facts, calculate to determine whether the current investment plan ($375 monthly deposits), will meet the education savings goal.

Exceed the goal by $994.50

Select the CORRECT statement(s) regarding the employer's Educational Assistance Program. Graduate courses are included in qualifying expenses. The Educational Assistance benefits do not have to be for work-related courses. Only full-time students qualify for the Employer-provided Educational Assistance Program. Educational Assistance Program can be used with an education tax credit for the same expenses.

I and I

Which of the following statements regarding 529 accounts and EFC is CORRECT? If a parent owner with student beneficiary, a 529 account is included in EFC calculation at parent's rate. Distributions for college from relative-owned accounts, reduce future financial aid eligibility by 0% of the distribution amount. If other family members establish an account as owners with student as beneficiary, assets are NOT counted for EFC calculation. Distributions for college from parent-owned 529 accounts reduce future financial aid eligibility by 50% of the distribution amount

I and III

Which of the following statements regarding education grants is CORRECT?

I and III Explanation The answer is I and III SEOGs, which are federal grants, give priority to students who also receive Pell Grants. Federal Work-Study programs provide students attending college with part-time jobs; in turn, the institution disburses the earned funds to students. Pell Grants are dispersed directly to students and are available only to undergraduate students. LO 8.2.1

Which of the following statements regarding Section 529 plans is CORRECT?

I only

Valarie is planning to go to college in the fall and wants to apply for a federal grant. She is interested in the Pell grant but does not know if she will be able to apply. Pell grants are available to which of the following students? Part-time students Full-time students Graduate students Undergraduate students

I, II and IV

To be eligible to receive federal student aid, you must be a U.S. citizen. be an eligible noncitizen of the U.S. maintain satisfactory academic progress. not be in default on a federal student loan.

I, II, III, and IV

To be eligible to receive federal student aid, you must be enrolled in an eligible program as a regular student seeking a degree. be enrolled in an eligible program as a regular student pursuing a certificate. be a citizen or eligible noncitizen of the United States. maintain satisfactory academic progress.

I, II, III, and IV

Which of the following are taken into account in calculating the expected family contribution (EFC) for financial aid purposes? Parental income Parental assets Student income Student assets

I, II, III, and IV

Which of the following expenses are qualified for a Coverdell Education Savings Account (CESA)? K-12 tuition Books Fees Supplies

I, II, III, and IV

Which of the following is considered qualified education expenses for the purpose of Coverdell Education Savings Accounts? Private elementary school tuition Room and board at a private boarding school for secondary education Graduate tuition Undergraduate tuition

I, II, III, and IV

Which of the following statements concerning qualified tuition plans (QTPs) is CORRECT? Under Section 529 of the Internal Revenue Code, QTPs, which are created, sponsored, and maintained by individual states or institutions, have tax-exempt status. Under QTPs, individuals may purchase tuition credits or certificates on behalf of a designated beneficiary, which entitles the beneficiary to a waiver of payment of qualified education expenses. Under QTPs, individuals may make contributions to an account that is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary.

I, II, and III

Your client, Kurt, has a child, Bryce, who is about to begin college full-time in the fall. He has heard of some of the education incentives built into the code, and has asked you to give him some information regarding the education incentives. Which of the statements are CORRECT regarding the education incentives? If Kurt purchased EE bonds and placed them into a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account for Bryce, there is no possibility of the bonds qualifying for the education exclusion. If Bryce has a felony drug conviction, he would be ineligible for the American Opportunity tax credit. If Bryce has a Coverdell Education Savings Account (CESA), distributions would be allowable to cover his room and board expenses. The American Opportunity credit would be allowable on expenses incurred for textbooks and room and bo

I, II, and III

Identify the financial aid programs available through the U.S. Department of Education that are need-based, have eligibility requirements, and require completion of the FAFSA. Pell Grant Supplemental Educational Opportunity Grant(SEOG) Unsubsidized Stafford Loan Teacher Education Assistance for College and Higher Education (TEACH) Grants

I, II, and IV

Olen and Kiera Littrell have three children. Their oldest child is currently in college, their second child will be starting college next semester, and their third child is still in high school. Olen works at the assembly plant with an income of $45,000 and Kiera is a homemaker. They rent an apartment and carry various credit card balances. What potential avenues would they most likely have to finance college expenses?

I, II, and IV

An employer's Educational Assistance Program could apply to which of the following expenses?

I, III, and IV

Which of the following expenses qualify for an employer's Educational Assistance Program? Books On-campus housing Part-time, graduate school tuition Full-time, undergraduate tuition

I, III, and IV

You are working with new financial planning clients, Dan and Patrice, on educational funding issues for their three dependent children. Dan and Patrice will file jointly this year, as they have always done, and anticipate an AGI of $110,000. Their oldest child, Ben, age 23, is in his first year of graduate school studying to be a pharmacist. Ben graduated from college in three years, so the American Opportunity tax credit was claimed for three years of Ben's education. Their middle child, Margaret, age 19, had a conviction for felony drug possession last year. She's "cleaned up her act" and will be a full-time student at a community college this year. Their youngest child, Francis, age 7, is a good kid who wants to be a doctor when he grows up.

II and III

nathan and Angela Flesher have three children. Their oldest child is currently in college, their second child will be starting college next semester, and their third child is still in high school. Nathan is a vice president at AJAX Corp with W2 income of $150,000 per year, and Angela is an administrative assistant earning $45,000 per year. What potential avenues would they most likely have to finance college expenses? Perkins loans Parent Loans for Undergraduate Students loans (PLUS loans) Pell grants Work study program

II and IV

Barbara is the beneficiary of a Section 529 college savings plan established by her parents. This year, Barbara withdraws $15,000 from the plan to furnish her new apartment. Which of the following statements regarding the tax treatment of this withdrawal is CORRECT?

II only

Two years ago, Tammy was convicted of a drug felony. Currently, she is enrolled full time in college and is pursuing a degree. She is claimed as a dependent on her parents' income tax return. Her parents' modified adjusted gross income is $90,000. Which of the following credits may Tammy's parents claim on their federal income tax return?

II only

Walker, age 24, is single. He occasionally takes courses at a local college to follow personal interests, but he is not pursuing a degree. He is enrolled on less than a half-time basis. He pays tuition expenses of $2,000, and his modified adjusted gross income (MAGI) is $45,000. Which of the following tax credits may Walker claim on his federal income tax return?

II only

Which of the following education funding techniques provide(s) tax advantages, regardless of the contributor's modified adjusted gross income (MAGI)? Coverdell Education Savings Account (CESA) Section 529 plan Series EE or Series I savings bonds

II only

Which of the following types of student financial aid must be repaid? Grants Loans Scholarships Credits

II only

Which of the following expenses are qualified for a Section 529 plan? K-12 tuition Post-secondary tuition Fees Supplies

II, III, and IV

Which of the following are common features between the Coverdell Education Savings Account (CESA) and the Section 529 plan?

Neither provides any federal income tax deductibility to the contributors.

In calculating the expected family contribution (EFC) for federal financial aid, which of the following parental assets is included? Home equity Cash value of life insurance policies Account balances in retirement plans

None of these

Mr. and Mrs. Smith come to you for advice on the financing of their son's college education at their state university. Even though their annual family income exceeds $100,000, they have not saved enough for his college expenses. You advise that their best opportunity to acquire education funds would be through

Parent Loans for Undergraduate Students (PLUS) loans

Which of the following statements regarding the Expected Family Contribution (EFC) as it relates to student financial aid is NOT correct?

Parental assets and income are assigned a higher rating in the EFC calculation than student assets and income

Your clients, Jason and Marcela, have a six-year-old daughter, Michelle. They want to start a savings plan for Michelle's college education. You are convinced that a Section 529 plan is the best option for Michelle's college education. What can you accurately tell Jason and Marcela about the 529 plan?

Qualified higher education expenses include tuition, fees, books, special needs services, and room and board if Michelle is at least a half-time student.

Tom and Samantha have a modified adjusted gross income (MAGI) of $250,000 and want to know which available tax benefit or combination of available tax benefits can they use to help pay for their daughter's college expenses. Which of the following is available to the couple?

Section 529 Qualified Tuition Program (QTP) Explanation The answer is Section 529 Qualified Tuition Program (QTP). Tom and Samantha's MAGI makes them ineligible for the American Opportunity Tax Credit, Lifetime Learning Credit, CESA, and Series EE savings bonds. Section 529 Qualified Tuition Programs do not have income limitations. LO 8.2.4

Which of the following is a need-based loan for which the U.S. Department of Education pays the accrued interest while the student is in school and during any deferment periods?

Subsidized Stafford Loan

Which of the following is a need-based loan for which the U.S. Department of Education pays the accrued interest while the student is in school and during any deferment periods? A) Pell Grant

Subsidized Stafford Loan

Which of the following statements concerning education tax credits and savings opportunities is CORRECT?

The American Opportunity Tax Credit reduces a family's tax dollar-for-dollar in an amount equal to 100% of the first $2,000 of qualified education expense and 25% of the next $2,000.

The Arnolds established a Section 529 plan for their daughter, Lisa. If Lisa decides not to attend college, which of the following statements is CORRECT?

The account balance may be rolled over to another eligible family member.

You discuss Coverdell Education Savings Accounts with Grant and Julie as a possible college funding vehicle for Abby. Which of the following statements describing a provision of a Coverdell ESA as used in the education funding process is CORRECT?

The annual contribution limit for a single beneficiary is $2,000.

Select the parental assets that are excluded from consideration when calculating the expected family contribution (EFC) for federal financial aid.

The excess of value over the amount owed on a personal residence

Which of the following is a characteristic of a prepaid tuition plan?

Which of the following is a characteristic of a prepaid tuition plan?

All of the following are ways to lose federal student aid eligibility excep

failure to pay on a subsidized Stafford Loan while enrolled at least half time.

All of the following items are considered qualified education expenses for purposes of the American Opportunity Tax Credit except

room and board.

All of the following statements regarding scholarships are CORRECT except

scholarships are usually awarded by the federal government.

All of the following statements regarding the expected family contribution (EFC) as it relates to student financial aid are CORRECT except

student income includes only taxable income from the year preceding the award year.

Tom is an independent student living on his own and is educating himself about government assistance available for higher education expenses. Tom should know that all of the following are government-sponsored financial aid programs except

the Lifetime Learning Credit.