| 1 EO034 281069 5/13 | 1 EO034 281069 3/13. | 2 EO034 281069 5/13 Funding college education Survey...
-
Upload
luz-ellingham -
Category
Documents
-
view
222 -
download
3
Transcript of | 1 EO034 281069 5/13 | 1 EO034 281069 3/13. | 2 EO034 281069 5/13 Funding college education Survey...
| 3EO034 281069 5/13
Figures include tuition, fees, room, and board. Estimated growth rate of 5.0%.Sources: The College Board, Trends in College Pricing, 2012.
College costs are risingFour years of tuition, room, and board
2012
Public college (in state) $71,440
Private college$158,07
2
$171,928
2030
$380,419
| 4EO034 281069 5/13
College debt is also rising57% of full-time undergraduates use
loans to help finance their college costs.
Among graduates from private universities who borrow money, the average debt is $29,900.
The median starting salary for a graduate with a bachelor’s degree is $55,700.
Sources: Trends in Student Aid, 2012; Education Pays, 2010 (The College Board),
| 5EO034 281069 5/13
A 529 college savings planhas many benefits
• Tax advantages: Account grows taxfree, and there are no taxes on funds withdrawn for qualified higher education expenses
• Control: Investor controls account assets after the beneficiary reacheslegal age
• Flexibility: Anyone can contribute — parents, grandparents, other family members, friends
Do you have existing custodial (UGMA/UTMA) accounts?
Converting a custodial account to a 529 can help you benefit
from tax advantages while increasing a child’s eligibility for financial aid.
| 6EO034 281069 5/13
Estate planningGrandparent uses Putnam 529 for AmericaSM to lower estate tax
* Married couples filing jointly may contribute up to $140,000 per beneficiary. Individuals may contribute up to $70,000. Contributions are generally treated as gifts to the beneficiary for federal gift tax purposes and are subject to annual federal gift tax exclusion amount ($14,000 for 2013). Contributor may elect to treat contribution in excess of that amount (up to $70,000 for 2013) as pro-rated over 5 years. Election is made by filing a federal gift tax return. While contributions are generally excludable from contributor’s gross estate, if electing contributor dies during 5-year period, amounts allocable to years after death are includible in contributor’s gross estate. Consult your tax advisor for more information.
Contribution to 529 plans*
Ω
$140,000
Ω
$140,000
Ω
$140,000
Ω
$140,000
Ω
Grandparents$700,000
Ω
$140,000
| 8EO034 281069 5/13
Taxes increased in 2013Tax item 2012 2013
Ordinary income 35% 43.4%
Dividends 15% 23.8%
Capital gains 15% 23.8%
Payroll tax 4.2% 6.2%
Income phaseouts of itemized deductions and personal exemptions?
No Yes
Tax rates reflect highest marginal rate and incorporate additional taxes related to the health-care reform law. Health-care-related taxes include a surtax of 3.8% on net investment income and an additional 0.9% payroll tax affecting single filers with income in excess of $200,000, and joint filers with income in excess of $250,000. Highest marginal tax rate on income, capital gains, and dividends apply to tax payers with taxable income above $400,000 ($450,000 for couples).
| 9EO034 281069 5/13
Annual U.S. Federal budget surplus/deficit, 2000–2012 ($B)
Will taxes increase even more?
-$1,500
-$1,000
-$500
$0
$500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Congressional Budget Office, Monthly Budget Review, September 2012.
| 10EO034 281069 5/13
The aging of America will further strain the systemTotal U.S. population age 65+
Source: U.S. Census Bureau, Facts for Features, May 2012.
Today
40.3 million
2050
88.5 million
| 11EO034 281069 5/13
New health-care taxes take effect in 2013
• Increase in the individual portion of the Medicare payroll tax on wages from 1.45% to 2.35%
• New Medicare investment income tax of 3.8%– Will affect interest, dividends, capital gains,
rental income– Distributions from retirement accounts are excluded– Interest from municipal bonds are not affected
• Targeted at individuals with more than $200K income (couples with $250K income)
| 12EO034 281069 5/13
Be aware of the AMTYou may owe the AMT if you
• Claim children asexemptions
• Live in an area with highincome or property taxes
• Claim miscellaneousitemized deductions
Your incomeChance you will owe AMT
$100K – $200K
2%
$200K – $500K
48%
$500K – $1M 78%
Source: Urban-Brookings Tax Policy Center, September 2012 estimates.
Will you owe the AMT?
| 13EO034 281069 5/13
Tips for avoiding orminimizing the AMT
• Select municipal bonds wisely
• Proceed with caution before exercising stock options
• Assess the impact of large capital gains
• Defer certain tax deductions like local property taxes if you are going to owe AMT
| 14EO034 281069 5/13
Taxes on traditionalretirement plans
A dollar inside a traditional (pretax)retirement savings account may onlyprovide 60¢ of income in retirement
Incomefor expenses
Federal income taxes
| 15EO034 281069 5/13
Consider the benefitsof a Roth IRA
• Tax-free incomein retirement
• No required distributionsin retirement
• Heirs receive assets free from income taxes
• Remember, beginning in 2010 everyone can convert to a Roth
Few benefits Some benefits ConsiderStronglyconsider
| 16EO034 281069 5/13
Planning for income in retirement and transferring wealth
The decisions you make today impact the shape your retirement takes tomorrow
| 17EO034 281069 5/13
2% 4% 6%
Longevity comes at a cost
• 30 years
• $50,000 income
Amount needed to maintain purchasing power:
$90,568
$162,169
$287,174
Inflation rate
| 18EO034 281069 5/13
The end of Social Security?
• If nothing changes– Beginning in 2010, benefits
owed exceeded taxes collected– The trust fund will be exhausted
in 2033
• Potential solutions– Raise wage base– Decrease or delay benefits– Pre-fund benefits through
personal, voluntary savings accounts
Sources: SSA 2011 Annual Report.
Work
ers
per
ben
efi
ciary
Worker-to-beneficiary ratio has fallen dramatically
5.1
2.8
2.1
0
1
2
3
4
5
6
1960 Current 2030
| 19EO034 281069 5/13
Create an income plan
SocialSecurity IRA
withdrawals
Real estate
Later in retirement
401(k)withdrawals
Part/full-timeworkPension
income
Immediateannuity
Early in your retirement
Life insurance
Long-term-care insurance
Investments are subject to market risk, including possible loss of principle.
| 20EO034 281069 5/13
Choose the rightwithdrawal rate
This example assumes a 95% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
0
10
20
30
40
50
Years
Percentage of your portfolio’s original balance withdrawn each year
10%will last10
years
9%will last11
years
4%will last
33 years
5%will last20
years
6%will last16
years
7%will last13
years
8%will last12
years
3%will last
50 years
How long would your money have lasted?
| 21EO034 281069 5/13
Watch your asset allocation
PORTFOLIO TYPE ALLOCATION 20 YEARS 30 YEARS 40 YEARS
CONSERVATIVE20% stocks50% bonds30% cash
BALANCED60% stocks30% bonds10% cash
GROWTH80% stocks20% bonds 0% cash
80%–100% probability 60%–79% probability 0–59% probability
96%
96%
76%
79%
54%
69%
89% 3%27%
How long would your money have lasted?The information below shows how various asset allocations affect a portfolio’s expected longevity. It assumes that 5% of the original account balance is withdrawn each year and that withdrawals were increased each year to account for inflation.
This example assumed a 95% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20-year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.
| 22EO034 281069 5/13
Pay attention to orderType of income Taxability
Social Security May be partially taxable as ordinary income
Pension income Taxed as ordinary income
IRA and 401(k) distributions Ordinary income rates
Dividend income 23.8% rate
Long-term capital gains 23.8% rate
Liquidation of investment principal Not subject to taxation
This is not intended as tax advice. Please consult your independent tax advisor regarding tax ramifications. Dividend and capital gains rates reflect highest marginal tax rate (20%) plus the 3.8% net investment income surtax.
| 23EO034 281069 5/13
Stretching an IRA to create generations of wealth
Income is based upon an initial investment of $200,000 and cumulative annual distributions for 39 years. This hypothetical illustration assumes an 8% annualized return (8.30% effective return) and that distributions are kept to the required minimum. It does not represent the performance of any Putnam fund or investment or take into account the effect of any fees or taxes. Investors should consider various factors that can affect their decision, such as possible changes to tax laws and the impact of inflation and other risks, including periods of market volatility when investment return and principal value may fluctuate with market conditions. The Stretch IRA feature is designed for investors who will not need the money in the account for their own retirement needs.
IRA owner’s wife dies at age 70, ten years after the IRA was created and before taking RMDs. Their 46-year old son begins receiving annual payments based on his life expectancy. He names his wife as his beneficiary. Value of IRA: $200,000.
Annual Required Minimum Distributions in selected years
29 years later, the son dies. His wife continues the established distribution schedule. She may not treat the IRA as her own and no rollover is available.
First year Year 10 Year 20 Year 30 Year 39
$12,019 $24,506 $54,566 $124,329 $270,526
The IRA is depleted, having generated over $3 million in income.
| 24EO034 281069 5/13
Consider a bucket approach
Short-term income bucket
Meet immediate cash flow needs, emergency fund, etc.
• Cash
• CDs/money market
• Short-term bonds
• Immediate annuities
• Social Security/pension income
• Wages
Mid-term income bucket
Mix of growth and income, replenish short-term, guard against market volatility
• Bonds
• Deferred annuities
• Absolute return funds
• Asset allocation funds,balanced funds
Long-term income bucket
Inflation hedge, longevity
• Growth stocks/funds
• Real estate
• Commodities
| 25EO034 281069 5/13
Do you need an estate plan?
• Do you have children who are minors?• Are all of your assets owned jointly with your
spouse?• Are most of your assets in real estate,
a business, or a retirement plan?• Do you have a durable power of attorney?• Do you have a living will/health-care proxy?• Do you own property in another state?• Do you have children from a prior marriage?
| 26EO034 281069 5/13
Stick to your plan: Important documents for staying in control
• Durable power of attorney
• Health-care proxy
• Will
• Revocable and irrevocable trusts
| 27EO034 281069 5/13
What are the next steps?• Consider transferring existing custodial accounts to a
529• Fund a 529 to remove assets from your estate• Talk to your tax professional on how to minimize AMT• Use a Roth IRA to create tax-free income in
retirementand avoid required distributions
• Consolidate retirement assets and develop an income plan
• Review legal documents like wills and trusts
| 28EO034 281069 5/13
Putnam 529 for America is sponsored by the State of Nevada, acting through the Trustees of theCollege Savings Plans of Nevada and the Nevada College Savings Trust Fund. Anyone may invest inthe plan and use the proceeds to attend school in any state. Before investing, consider whetheryour state’s plan or that of your beneficiary offers state tax and other benefits notavailable through Putnam 529 for America. If you withdraw money for something other than qualified higher education expenses, you will owe federal income tax and may face a 10% federal taxpenalty on earnings. Consult your tax advisor.
You should carefully consider the investment objectives, risks, charges, and expensesof the plan before investing. Ask your financial representative or call Putnam at1-877-PUTNAM529 for an offering statement containing this and other informationfor Putnam 529 for America, and read it carefully before investing.
Putnam Retail Management, principal underwriter and distributor Putnam Investment Management, investment manager.
Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing.
This information is not meant as tax or legal advice. Please consult your legal or tax advisor beforemaking any decisions. Shares of mutual funds are not deposits or obligations of, or guaranteed orendorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible lossof the principal amount invested.
Putnam Retail Management putnam.com