Reference no: EM132589290
Your clients, Jamal and Chyna Gwynn, would like you to determine if they are on track to meet the education funding objective of their son Jarius. Jarius is currently 13 years of age. Jamal and Chyna have high hopes for Jarius's future education.
Use the following data to determine whether or not Jamal and Chyna need to save more to fund Jarius's educational need.
Combined federal and state marginal tax bracket: 29 percent
After-tax rate of return before college: 7.90 percent
Before-tax rate of return of 529 plan: 9.75 percent
Rate of return on educational assets after college begins: 5 percent
College expense inflation rate: 4 percent
Year Jarius begins college: Age eighteen
Number of years in college: four years
Yearly cost of college today: $60,000
After-tax assets earmarked for Jarius's education: $25,000
529 plan assets earmarked for Jarius's education: $60,000
After-tax educational annual savings: $0
Annual tax-advantaged educational savings: $18,000
Annual education savings growth rate: 3 percent
Question 1: Approximately how much will Jamal and Chyna need (gross need) on Jarius's first day of college?
Question 2: After accounting for the future value of assets and savings, how much additional (if any) do Jamal and Chyna need on Jarius's first day of college?
Question 3: Based on your answer to the question above, how much must Jamal and Chyna save annually in the 529 plan to meet the educational saving goal?
Question 4: If instead, Jamal and Chyna decide to save outside of a 529 plan or other tax-advantaged plan, how much must they save each year?
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