An Overview of Section 529 Plans Douglas Chittenden VP Institutional Product Management TIAA-CREF

1. An Overview of Section 529 Plans Douglas Chittenden VP Institutional Product Management TIAA-CREF

2. Cost of Higher Education *Source: Trends in College Pricing, published by the College Board FS-3

3. College Funding Opportunities Qualified Tuition Programs – “529” • Prepaid Tuition Plans • College Savings Plans

4. Prepaid Tuition Plans • Allows for the purchase of future tuition at today’s prices. • Approx. 20 states operate pre-paid programs for public universities in those states. • Typically funds may be used tax-free for tuition and room and board. • A program for independent colleges and universities is available through the Tuition Plan Consortium with TIAA-CREF as the program manager.

5. College Savings Plans • Federal tax deferred growth and federal tax free withdrawals for qualified higher education expenses • Some states offer additional state tax incentives • Funds can be used at any eligible school for tuition, fees, room and board, books, supplies and required equipment such as computers • No income limits for participation or benefits

6. College Savings PlanProgram Design • Programs typically offer a range of investment options. • Aged based models • Asset based options, fixed income, equity • Fund specific options • Account owners can change options yearly • States set contribution maximums set to allow for full funding of four years of college

7. College Savings Marketplace • 529 Assets have grown to over $90 Billion industry wide • Federal Tax Permanency enacted – “Sunset Provision” eliminated • Broker-Driven Growth, 70-80% of assets are invested through Advisors and Brokers • Confusing 529 Landscape • Pre-Paid vs. Savings vs. Other College Savings Options such as UGMA accounts • Large number of 529 programs to choose from

8. College Savings Programs – Market Overview • Programs are maturing and assets are growing, driving down costs and leading to product innovation – affinity programs etc.. • State market is segmenting as larger states accumulate more assets • Industry Groups are Pushing for State Tax Equity – more attention to suitability

9. Principles for Successful College Savings Strategy • Start Early and make continuous, on-going contributions • Typical Re-contribution Rate – 60% • Use a diversified portfolio of investments • Age Based Allocation Options typically hold 60% - 70% of program assets • Take advantage of federal and state based tax incentives • Minimize expenses

10. Take Advantage of Tax Incentives * $6,000 invested each year for 15 years. 6% investment return. Account owner in 27% federal and 5% state income tax brackets. Beneficiary child is in the 10% federal and 5% state income tax bracket. 35% of proceeds are dividends taxed at 27% federal and 5% state income tax rates. 30% are short-term capital gains and 35% are deferred capital gains taxed at a 20% rate (10% for UGMA). FS-19

11. Minimize Expenses Assumes a $10,000 deposit at birth and allowed to grow for 18 years in the same plan, with different annual asset-based fee charges . Assuming a 7% return.

12. TIAA-CREF is program manager for 10 state programs TIAA-CREF – College Savings Programs

13. TIAA-CREF College Savings Program - Independent College (I-529) Pre-Paid Program • I-529 program provides for the pre payment of tuition at Independent Colleges and Universities, it is operated by the Tuition Plan Consortium (TPC) • Approximately 275 Member Private Colleges and Universities, including Princeton, Stanford, University of Notre Dame and Johns Hopkins (new member.) • Pre-paid tuition can be applied to any member institution • If child does not attend member institution, account owner receives a refund with a nominal rate of investment return