Putnam 529 for America
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Putnam 529 for America
- 1. | 1EO017 281455 4/13 Not FDIC Insured May Lose Value No Bank Guarantee
- 2. | 2EO017 281455 4/13 The Challenge
- 3. | 3EO017 281455 4/13 Sources: The College Board, 2012–2013 College costs are rising Four years of tuition and fees 2012 Public college $37,800 Private college $127,100 $157,801 2030 $362,800
- 4. | 4EO017 281455 4/13 College debt is also rising • Student debt nationally has reached $1 trillion, higher than car loans or credit cards • Two thirds of the national college class of 2011 finished school with loan debt • Average student debt: $26,600 Sources: Federal Reserve Bank of New York's Quarterly Report on Household Debt, Q3 2012, Institute for College Access & Success' Project on Student Debt.,CNNmoney, October 18, 2012
- 5. | 5EO017 281455 4/13 College still offers life-long benefits • Linked to long-term social and physical wellness • Higher income over lifetime, depending upon major selected • Decreased likelihood of unemployment * Lumina Foundation and Georgetown University's Center on Education and the Workforce, August 15, 2012.
- 6. | 6EO017 281455 4/13 Help meet the challenge with a 529 plan
- 7. | 7EO017 281455 4/13 What is a 529 plan? • A tax-advantaged way for families to save for college • Available to investors nationwide • Proceeds can be used for any accredited college
- 8. | 8EO017 281455 4/13 Benefits of a 529 plan • Anyone — regardless of income — can contribute to the account • You can change beneficiaries at any time • Control of the account will not shift to the child as with traditional savings accounts • Favorable financial aid treatment
- 9. | 9EO017 281455 4/13 Benefits of a 529 plan • Rollovers allowed once every 12 months or upon change of a beneficiary • Investment changes allowed once per calendar year • You have other options if the child does not attend college
- 10. | 10EO017 281455 4/13 The tax-smart way to save • You pay no federal income taxes – On your earnings while the account is invested – When you withdraw money to pay for college expenses • Contributions are made with after-tax dollars Withdrawals of earnings not used to pay for qualified higher education expenses are subject to tax and a 10% penalty. State taxes may apply. Withdrawals for qualified higher education expenses subject to tax if the American Opportunity Credit Scholarship or Lifetime Learning Credit is claimed for same expenses. If withdrawing funds for qualified higher education expenses from both a 529 account and a Coverdell Education Savings Account, a portion of the earnings distribution may be subject to tax and penalty on amounts that exceed qualified higher education expenses. Read the offering statement for details.
- 11. | 11EO017 281455 4/13 The tax-smart way to save • Gift tax benefits: Make five years’ worth of gifts without triggering the federal gift tax • Maximum for individuals: $70,000 for 2013 • Maximum for married couples: $140,000
- 12. | 12EO017 281455 4/13 The tax-smart way to save A 529 account can help decrease your taxable estate while you maintain control over assets 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 ($40,000 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. Ω $140,000 Ω $140,000 Ω $140,000 Ω $140,000 Ω Grandparents $700,000 Ω $140,000
- 13. | 13EO017 281455 4/13
- 14. | 14EO017 281455 4/13 A wide range of investment choices • Age-based portfolios • Goal-based portfolios • Individual fund options from Putnam and other firms • Putnam Absolute Return Funds
- 15. | 15EO017 281455 4/13 Age-based portfolios Newborn 4 8 12 18 Conservative portfolio Stocks Bonds Cash Moderate portfolio Aggressive portfolio Actively managed and adjust over time, becoming more conservative as the child approaches college age 21% 70% 37% 25% 37% 38% 26% 37% 9% 31% 3%66% 85% 100% 15% Asset allocations shown are target allocations. Actual allocations may vary. The six age-based and goal-based options invest across four broad asset categories: short-term investments, fixed-income investments, U.S. equity investments, and non-U.S. equity investments. Within these categories, investments are spread over a range of asset allocation portfolios that concentrate on different asset classes or reflect different styles. Each age-based option has a different target date, which is based on the year in which the beneficiary of an account was born. The principal value of the funds is not guaranteed at any time, including age-based options closest to the college age.
- 16. | 16EO017 281455 4/13 Goal-based portfolios Balanced Allocations shown are target allocations; actual allocations may vary. See the offering statement for details. Actively managed and keep the same allocation mix, regardless of the child’s age Aggressive growthGrowth Balanced Option Growth Option Aggressive Growth Option • Putnam 529 GAA Growth Portfolio • Putnam 529 Balanced Portfolio • Putnam 529 Money Market Portfolio • Invests in the Putnam 529 GAA Growth Portfolio and Putnam 529 All Equity Portfolio • Invests in the Putnam 529 GAA All Equity Portfolio Stocks Bonds Cash 100% 85% 15%34% 6% 60%
- 17. | 17EO017 281455 4/13 Individual investment options Stocks Bonds Cash • Putnam Equity Income Fund Option • Putnam International Capital Opportunities Fund Option • Putnam Voyager Fund Option • Fidelity Advisor Small Cap Fund Option • MFS Institutional International Equity Fund Option • Principal MidCap Fund Option • SSgA S&P 500® Index Fund Option • Putnam High Yield Trust Option • Putnam Income Fund Option • Federated U.S. Government Securities Fund: 2–5 years Option Capital preservation money market: Putnam Money Market Fund Option* Build your own portfolio with a range of choices * Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. The plan involves investment risk, including the loss of principal.
- 18. | 18EO017 281455 4/13 Absolute Return Funds • Putnam 529 for America is the only 529 account to offer a suite of absolute return funds as an investment option • The funds target positive 3-year returns of 1%, 3%, 5%, or 7% above inflation as measured by T-bills and with lower relative volatility Absolute return investing can be an ally in helping to navigate today’s market volatility Chart does not represent the performance of Putnam Absolute Return Funds. Actual performance can be found on putnam.com. The funds’ strategies are designed to be largely independent of market direction, and the funds are not intended to outperform stocks and bonds during strong market rallies. There is no guarantee that the funds will meet their objectives. Putnam Absolute Return 100 Putnam Absolute Return 300 Putnam Absolute Return 500 Putnam Absolute Return 700 +7% +5% +3% +1% ® ® ® ®
- 19. | 19EO017 281455 4/13 Putnam Absolute Return Funds Putnam Absolute Return 100 Fund® option Putnam Absolute Return 300 Fund® option Putnam Absolute Return 500 Fund® option Putnam Absolute Return 700 Fund® option For investors considering short-term securities. Invests in bonds and cash instruments. For investors considering a bond fund. Invests in bonds and cash instruments. For investors considering a balanced fund. Can invest in bonds, stocks, or alternative asset classes. For investors considering a stock fund. Can invest in bonds, stocks, or alternative asset classes. The funds’ strategies are designed to be largely independent of market direction, and the funds are not intended to outperform stocks and bonds during strong market rallies. Consider these risks before investing: Our allocation of assets among permitted asset categories may hurt performance. The prices of stocks and bonds in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry. Our active trading strategy may lose money or not earn a return sufficient to cover associated trading and other costs. Our use of leverage obtained through derivatives increases these risks by increasing investment exposure. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. The fund may not achieve its goal, and it is not intended to be a complete investment program. The fund’s effort to produce lower volatility returns may not be successful and may make it more difficult at times for the fund to achieve its targeted return. In addition, under certain market conditions, the fund may accept greater volatility than would typically be the case, in order to seek its targeted return. For the 500 Fund and 700 Fund these risks also apply: REITs involve the risks of real estate investing, including declining property values. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Additional risks are listed in the funds’ prospectus.
- 20. | 20EO017 281455 4/13
- 21. | 21EO017 281455 4/13 $500 monthly contributions at a hypothetical 6% annual growth rate 5 years 10 years 18 years $163,477 Hypothetical taxable account value $193,677 Hypothetical 529 account value $81,940 $75,007$34,885 $33,446 Your savings accumulate faster because account is not taxed This example assumes contributions of $500 per month, a hypothetical 6% nominal rate of return compounded monthly with an effective return of 6.17%, and a 28% tax bracket for the taxable account. Performance shown is for illustrative purposes and is not related to an actual investment. Regular investing does not ensure a profit or protect against loss in a declining market. Capital gains, exemptions, deductions, and local taxes are not reflected. Certain returns in a taxable account are subject to capital gains tax, which is generally a lower rate than ordinary income tax rates and would make the investment return for the taxable investment more favorable than reflected on the chart. Investors should consider their personal investment horizon and income tax brackets, both current and anticipated, when making an investment decision. These may further impact the results of the comparison.
- 22. | 22EO017 281455 4/13 The Smith family waits 10 years to start saving, contributing $1,219 every month Total contribution $117,024 The Jones family starts saving today, contributing $340 every month Total contribution $73,440 Start early, contribute often This chart is for illustrative purposes only and is not intended to be representative of past or future performance. The Jones family saves $340 monthly for 18 years. The Smith family saves $1,219 monthly for 8 years. Assumes a hypothetical 8% annual return compounded monthly. Earnings $89,714 Account value $163,154 after 18 years Earnings $46,130 Account value $163,154 after 8 years
- 23. | 23EO017 281455 4/13 The Jones grandfather makes an initial contribution of $14,000 Total contribution $62,816 The Jones parents contribute $226 every month Let the whole family contribute This chart is for illustrative purposes only and is not intended to be representative of past or future performance. The Jones grandfather makes a lump-sum contribution of $14,000 today. The Jones parents contribute $226 each month. Assumes a hypothetical 8% annual return compounded monthly. Earnings $104,492 Account value $167,308 after 18 years
- 24. | 24EO017 281455 4/13
- 25. | 25EO017 281455 4/13 A gift of $70,000 in 2013 would constitute five years’ worth of gifts. Additional gifts made for the same beneficiary in the same five-year period would be subject to federal gift taxes. Election is made by filing a federal gift tax return. If the electing contributor dies during the 5-year period, amounts allocable to year after death are inducible in the contributor’s gross estate. * Contribution limit as of 1/1/13. Subject to periodic review. How much can you contribute? • No minimum investment • Contributions can occur until the account value reaches $370,000* • Contribute five years’ worth of gifts in a single year
- 26. | 26EO017 281455 4/13 Many ways to contribute • Invest a lump sum • Establish a dollar cost averaging program • Establish a systematic investment program from your bank • Encourage contributions with gift certificates Systematic investing and dollar cost averaging do not assure a profit or protect against loss in a declining market. You should consider your ability to continue investing during periods of low prices.
- 27. | 27EO017 281455 4/13 Withdrawals are easy • You tell us how to make out the check • Mail the completed form to Putnam Investments Withdrawals of earnings not used to pay for qualified higher education expenses are subject to tax and a 10% penalty. State taxes may apply.
- 28. | 28EO017 281455 4/13 • Contact [insert broker name] • Call 1-877-PUTNAM529 • Visit putnam.com/529
- 29. | 30EO017 281455 4/13 Not FDIC Insured May Lose Value No Bank Guarantee Delete “They are the faces of the future”
Notas del editor
- College costs are going up. Using a conservative 5.5% inflation rate, if current trends continue, in 18 years tuition could cost over $158,000 at a public college. Whereas, tuition at a private college would be projected to total over $363,000.
- Few students can afford to pay for college without some form of education financing. Undergraduate students receive 46% of their funding in the form of grants and 49% in the form of loans, including alternative nonfederal loans. The proportions for graduate students are 33% grants and 64% loans. Two thirds (65.7%) of 4-year undergraduate students graduate with some debt, and the average student loan debt among graduating seniors is $26,600 (excluding PLUS Loans but including Stafford, Perkins, state, college, and private loans). This level of debt seems even more daunting when you consider that the median salary for a graduate with a bachelor ’ s degree is $50,900. Graduate and professional students borrow even more, with the additional debt for a graduate degree ranging from $27,000 to $114,000.
- Study released last August by the Lumina Foundation and Georgetown University's Center on Education and the Workforce, seems to thoroughly demolish the idea that the Great Recession diminished the value of a college degree. Yes, recent college grads have struggled more than usual to find jobs matching their training. But overall, even as unemployment was rising past 10 percent, the authors found the economy actually added 200,000 jobs for workers with a bachelor's degree. Since the recovery began, it has created 2 million more. Just as there wasn't really a recession, at least in terms of job creation, for those with college degrees, there hasn't been a recovery for those without them. Nearly 6 million high-school-only jobs have been lost since the downturn began, and they are still declining even in the recovery. "Since the recovery started two years ago, we've seen a real acceleration. The gap between those with a college credential and those without one is growing." The unemployment rate for all four-year graduates is 4.5 percent. For recent graduates, it's 6.8 percent. For recent graduates trying to work with only a high school diploma, it's nearly 24 percent. Overall, the number of jobs for people with at least some college is growing at a healthy 4 percent annually. But the growth rate for high-school-only jobs is zero, and those jobs remain 10 percent below their pre-recession levels. College Costs: New Research Weighs The True Value Of A College Education By JUSTIN POPE 08/20/12 04:05 PM ET Huff Post/Money The U.S. Bureau of Labor Statistics, BLS, and other sources show that higher levels of education are linked to higher wages and lower levels of unemployment. In 2011, the BLS stated that the average rate of unemployment across workers of all levels of education was 7.6 percent. However, among those who had not completed a high school diploma, unemployment was at 14.4 percent. For those who had a high school diploma or equivalent, the unemployment rate dropped to 9.4 percent.
- Like most major financial goals, financing a college education requires planning. A 529 plan offers many benefits for families who want to save for college.
- Originally, 529 plans were designed to help state residents pay for in-state public universities. In the 1990s, they became available to investors nationwide when Congress built the plans into the Internal Revenue Code (Section 529). Proceeds from a 529 account can be used at any accredited college to pay for tuition, fees, room and board, books, and other qualified expenses. The earnings in a 529 account are not taxed, so your savings can accumulate faster than they would in a taxable account.
- A key benefit of a 529 plan is that anyone can contribute on behalf of the beneficiary — parents, grandparents, aunts, uncles, and friends. Contributions can be as high as $370,000 over the life of the account. If you have a change in plans — for example, your child receives a scholarship or decides not to attend college — you can switch the account to another beneficiary. You can change the beneficiary as many times as you like, providing it is a family member, as defined by the IRS. You can even name yourself as beneficiary. Another option, if your child doesn ’ t go to college, is to leave the money invested in the plan for later use. However, if you use your savings for non-qualified expenses, the earnings portion will be taxed at the recipient ’ s tax rate and will be subject to a 10% additional tax. Another benefit is control. As account owner, you retain control over withdrawals for the life of the account. This benefit is not offered by non-529 education savings accounts, such as UGMAs or UTMAs, which transfer control to the child when the child reaches legal age.
- A key benefit of a 529 plan is that anyone can contribute on behalf of the beneficiary — parents, grandparents, aunts, uncles, and friends. Contributions can be as high as $370,000 over the life of the account. If you have a change in plans — for example, your child receives a scholarship or decides not to attend college — you can switch the account to another beneficiary. You can change the beneficiary as many times as you like, providing it is a family member, as defined by the IRS. You can even name yourself as beneficiary. Another option, if your child doesn ’ t go to college, is to leave the money invested in the plan for later use. However, if you use your savings for non-qualified expenses, the earnings portion will be taxed at the recipient ’ s tax rate and will be subject to a 10% additional tax. Another benefit is control. As account owner, you retain control over withdrawals for the life of the account. This benefit is not offered by non-529 education savings accounts, such as UGMAs or UTMAs, which transfer control to the child when the child reaches legal age.
- Tax advantages are another reason the 529 plan is the most popular way to save for college. With a 529 plan, you pay no federal income taxes on your earnings while your account is invested. Also, you pay no federal income taxes on withdrawals to pay for qualified expenses such as college tuition, room, and board. Withdrawals of earnings not used to pay for qualified higher education expenses are subject to taxes and penalty. While qualified withdrawals are federally tax free, state taxes may apply.Your tax advisor or financial representative can help you determine what ’ s best for you in terms of tax consequences.
- A 529 account offers a special gift tax exclusion that allows you to make five years ’ worth of gifts in a single year to a single beneficiary without triggering the federal gift tax. [Contributions are generally treated as gifts to the beneficiary for federal gift tax purposes and are subject to the annual federal gift tax exclusion amount ($14,000 for 2013). Contributor may elect to treat contributions in excess of that amount (up to $70,000 for 2013) as prorated 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 the 5-year period, amounts allocable to years after death are includible in contributor ’ s gross estate. Consult your tax advisor.]
- A 529 account can also help with estate planning. In certain cases, contributions to a 529 account can be removed from your estate for tax purposes — yet you will retain control over the assets. This benefit is unique to 529 plans. In this illustration, these grandparents were able to remove $700,000 from their estate in one year, while contributing to the 529 accounts for five grandchildren. In addition, they retain control over the assets for the life of the accounts.
- Since offering one of the first 529 college savings plans in the country a decade ago, Putnam Investments has been helping families across America build their futures. Putnam ’ s college savings plan — Putnam 529 for America — is backed by Putnam ’ s expertise in 529 plan administration, industry-recognized customer service, and investing expertise. Investors across the country can invest in the plan and proceeds can be used to attend school in any state. Putnam has over 75 years of investment experience. The firm was founded in 1937 with one of the first mutual funds to combine stocks and bonds in a single portfolio. Today, Putnam offers a wide range of stock, bond, multi-asset, and absolute return portfolios designed for diverse financial goals.
- Putnam 529 for America offers many ways to invest your college savings.
- Think of the age-based portfolios as being on “ automatic pilot. ” As the child approaches college age, each portfolio automatically becomes more conservative — with fewer stocks and more fixed-income investments. In addition, the portfolio is rebalanced quarterly to make sure it stays on track. For example, let ’ s take a look at the Conservative portfolio. It begins with a ratio of 66% stocks, 31% bonds, and 3% cash. When the beneficiary is age 21, the investment mix is considerably more conservative — 9% stocks, 21% bonds, and 70% cash.
- Goal-based portfolios are designed to meet specific goals and levels of risk tolerance. Each portfolio maintains the same investment mix, regardless of the age of the child. Let ’ s look at the balanced portfolio, which is designed to offer a balanced approach, with more moderate potential returns and less risk than the growth or aggressive growth portfolios. It typically has a mix of 60% stocks, 34% bonds, and 6% cash, with maximum and minimum band ranges, although the target allocation may change from time to time as market conditions warrant. The Growth Portfolio offers potentially higher returns with a greater risk of principal loss. It has a targeted allocation of 85% stocks and 15% bonds. It may help you accumulate savings more rapidly than the Balanced Portfolio, but it comes with the potential for greater risk. The Aggressive Growth Portfolio offers the potential for the highest returns over time, along with a correspondingly higher risk of principal loss. It has a targeted allocation of 100% stocks.
- You may also build your own portfolio of investment options. Putnam 529 for America offers several options that invest in a variety of professionally managed mutual funds. The options cover the risk/reward spectrum so you can create a portfolio tailored to your specific needs.
- Finally, I want to tell you about a feature that ’ s unique to Putnam 529 for America — the option to invest in Putnam Absolute Return portfolios. Absolute Return portfolios are designed to help you meet your college savings goals while pursuing lower volatility than more traditional mutual fund investments. The funds seek a positive return that exceeds the rate of inflation — as reflected by Treasury bills — over a period of three years, regardless of market conditions. If you are concerned about market volatility, you might consider these portfolios.
- There are four Absolute Return choices. They seek returns that exceed the rate of inflation by 1% (100 Fund), 3% (300 Fund), 5% (500 Fund), and 7% (700 Fund) The funds invest in a wide range of securities in markets around the globe. The mix of investments is shifted as opportunities change, and the funds use progressive tools to help control risk. The funds have the potential to outperform general markets during periods of flat or negative returns. Since 1999, Putnam has managed absolute return strategies for institutional clients.
- Now, a 529 plan is an investment account. Let ’ s talk about ways to make the most of this investment.
- First, let ’ s take a look at the benefit of tax-deferred savings. As this example shows, your savings will accumulate faster than they would in a taxable account because there is no tax on your earnings.
- Another way to make the most of your 529 account is to take advantage of a time-tested strategy — start saving early, and contribute as much as you can. In this example, the Jones family has a newborn and starts saving right away. Working with their financial advisor, they determined that they must contribute $340 each month to their account to pursue their goal. The Smith family waits 10 years to start saving. They can still meet their goal, but they have to contribute considerably more — $1,219 — each month. The sooner you start contributing, the easier it will be to pursue your college savings goals. Remember, systematic investing does not assure a profit or protect against loss. You should consider your ability to continue investing during periods of low prices.
- In this example, we see what financing a college education might be like if the whole family gets involved. The Jones grandfather makes an initial lump-sum contribution of about $14,000, leaving the Jones parents to contribute $226 a month in order to meet their savings goals.
- You can contribute as much or as little as you wish until the account value reaches $370,000. Anyone else can contribute to the account as well. As we discussed earlier, you can also make five years ’ worth of contributions all at once, putting up to $70,000 (or $140,000 for couples filing jointly) to work in your account without triggering the federal gift tax. This may be a lot more money than you have on hand, but it may make sense for a grandparent or other relative who wants to help and is also looking for a way to reduce the size of his or her taxable estate.
- There are a number of ways to contribute to the account: You can make a lump-sum investment You can sign up for a systematic investment plan using payroll or bank account deductions A dollar cost averaging program allows you to gradually transfer a lump-sum contribution from one investment option to another You can order gift certificates that friends and relatives can use to make contributions to your account. Systematic investing and dollar cost averaging do not assure a profit or protect against loss in a declining market. You should consider your ability to continue investing during periods of low prices.
- When you ’ re ready to withdraw your savings, simply fill out a single form, indicate how the check should be made out, and mail the form to Putnam. The money can then be sent to the account owner, to the beneficiary, or directly to the college or university the student is attending.
- Contact me. I ’ m here to answer any questions you have about saving for college or Putnam 529 for America. You can also access and manage your account online, or call 1-877-PUTNAM529 for assistance. Thank you for coming.