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Frequently Asked Questions
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- What is a 529 plan?
- What is a beneficiary?
- Who can open a 529 plan account?
- Where can I use my 529 plan assets?
- How much do I need to open an account?
- What does a 529 plan cost?
529 Tax Benefit FAQs
- What income tax benefits are available from a 529 plan?
- What are the gift- and estate-tax benefits of a plan?
529 Investment FAQs
- What kind of investment options does a 529 plan offer?
- Are 529 plan investments mutual funds?
- Are investments in a 529 plan guaranteed?
- Can I make an investment change in my account?
- If I'm invested in an age-based investment option, do I need to do anything as my beneficiary gets closer to college age?
529 Enrollment FAQs
529 Rollover & Transfer FAQs
- Can I roll over money from an UGMA/UTMA account or Coverdell Education Savings Account into a 529 account?
- Can I move money from one 529 plan to another for the same beneficiary?
- What is Ugift?
- Which 529 plans currently offer Ugift?
- How do I invite family and friends to participate in Ugift?
- Do I have to wait for a special celebration to use Ugift?
- What is the difference between email and paper gift coupons?
- What if I don't have the email address for someone I want to invite?
- Where can I find a list of family and friends who I've already invited?
- What if I want to invite someone new after I've already sent out the original invitation?
- How do I know who has sent in a gift contribution?
- How do I know that a gift contribution has gone into my account?
- How are gift contributions allocated?
- When are gift contributions invested?
- How does the 529 plan know into which account to deposit a gift?
- Are there any tax consequences for Ugift contributions?
- As the account owner, do I have to use this process for any contribution from someone other than myself?
- Will I receive a confirmation of the gifts submitted to my 529 account on behalf of my beneficiary?
- How does the gift-giver know if their gift was received by the 529 plan?
- How does the account owner know that a gift was sent?
A 529 plan is a tax-advantaged plan sponsored by individual states to encourage individuals and families to save for future higher education expenses. (The name "529" refers to Section 529 of the Internal Revenue Code, which established tax guidelines for this type of college investment plan.)
A beneficiary is the person for whom you are opening the 529 plan account. It can be a child or an adult; you can even be your own beneficiary.
Most 529 plans are available to any U.S. citizen or resident alien of legal age who wants to open an account. You must have a Social Security number or Tax Identification number and a valid physical address within the United States or Puerto Rico. The student for whom you're saving (the beneficiary) can be anyone (including yourself) and must also have a Social Security number. There are generally no state residency requirements or income restrictions in 529 plans (with the exception of a handful of prepaid plans).
Use them at any eligible institution of higher education! Assets in a 529 plan account aren't just for public and private 4-year colleges and universities. They can also be used at eligible trade and technical schools, graduate schools, as well as for qualifying 2-year associate degrees -in the U.S. and abroad- provided the educational institution is eligible under the rules applicable to 529 plans. Eligible educational institutions generally include all post-secondary institutions that participate in U.S. Department of Education student financial aid programs. To search for eligible institutions, click here.
This varies by plan. Some let you start with as little as $25. You can set up an Automatic Investment Plan from your bank account or you may be able to set up a payroll deduction plan.1 Both are generally subject to your plan's contribution minimums.
Plan costs and fee structures vary by plan. However, there are some typical costs that you can expect to see as you review various 529 plans.
1A plan of regular investment cannot assure a profit or protect against a loss in a declining market.
529 Tax Benefit FAQs
Federal taxes: Earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.1 Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room and board costs during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.
State taxes: Many states offer deductions or credits for the contributions that you (as account owner) make to their state plan (if you are a taxpayer in that state). When you are looking for a 529 plan, check out your own state's plan to see if it offers such a tax benefit.
For 2009, individuals can invest up to $13,000 ($26,000 if married filing jointly) per beneficiary without assuming any gift-tax consequences. For accelerating gifting, you can also contribute up to $65,000 per child in a single year ($130,000 if married filing jointly) and take advantage of five years' worth of tax-free gifts made in a single year.2 Contributions are considered completed gifts and are removed from your estate, but you, as the account owner, retain control. For more information, consult your tax advisor or estate-planning attorney.
1 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.
2 In the event the donor does not survive the five-year period, a pro-rated amount will revert to the donor's taxable estate.
529 Investment FAQs
Every plan offers a different set of investment options, featuring different investment managers. Two of the most common options are age-based and individual portfolios.
Age-Based: If you prefer a simplified approach to investing, you can invest in a pre-determined series of investment portfolios that automatically change over time as the child nears college-age.
Individual Portfolios: Many plans offer a menu of portfolios with different security mixes. You can allocate a percentage of your investment in the portfolios that meet your specific investment goals, including your risk tolerance and time horizon.
No. The portfolios offered by 529 plans are municipal securities and are not mutual funds. Your investment buys shares or units of the portfolio.
As with many investment types, a 529's returns are not guaranteed and your account value will fluctuate with market performance. Keep in mind that the holding period for college investors is short (generally 5 to 20 years), and you should consider investing more conservatively as the time approaches for you to begin making withdrawals. Before you select an investment option, you should carefully consider your investment time horizon and risk tolerance.
You can change the direction of your future contributions at any time. Under the federal tax rules governing 529 plans, you can reallocate your investments once per calendar year or when you change the account's beneficiary, without incurring taxes.
If I'm invested in an age-based investment option, do I need to do anything as my beneficiary gets closer to college age?
One of the great things about the age-based option is that you don't need to keep rebalancing the portfolio. Investments in any of the age-based options will automatically change over time as your beneficiary ages, shifting automatically from more aggressive investments when the beneficiary is younger to more conservative investments as the beneficiary approaches college age.
529 Enrollment FAQs
If the account owner is the parent of a dependent student (who is the beneficiary on the account), a 529 plan is viewed as a parental asset and only up to 5.6% of its value is included in the "Expected Family Contributions" (EFC) formula. Note that with respect to financial aid programs offered by educational institutions and other non-federal sources, the effect of being the owner or beneficiary of a 529 plan account varies from institution to institution.
The federal and nonfederal financial aid programs treatment of assets in a 529 plan are subject to change at any time. You should therefore check and periodically monitor the applicable laws other official guidance, as well as particular program and institutional rules and requirements, to determine the impact of 529 plan assets on eligibility under particular financial aid programs.
For more information about financial aid eligibility, contact your tax advisor. You should also check with the schools you are considering regarding their criteria for financial aid. A helpful online resource for understanding financial aid issues is finaid.org.
529 Rollover & Transfer FAQs
Can I roll over money from an UGMA/UTMA account or Coverdell Education Savings Account into a 529 account?
UGMA/UTMA: You may use money from a Uniform Gifts/Transfers to Minors Account (UGMA/UTMA) to open a 529 account. The liquidation of assets currently held in the UGMA/UTMA account would generally be a taxable event.1 Note that you need to designate that the account is a custodial UGMA/UTMA account on the account application when you open the 529 plan account. UGMA/UTMA custodial accounts are subject to additional requirements and restrictions. You should contact a tax professional to determine how to transfer an existing UGMA/UTMA account and what the implications of such a transfer may be.
Coverdell ESA: You can contribute to a 529 plan with proceeds from the sale of assets held in a Coverdell Education Savings Account. When you move money from a Coverdell account to a 529 account, you have to complete the transfer within the same calendar year to avoid a tax consequence.
Yes. You can generally perform a tax-free rollover of a 529 account for the same beneficiary as often as once every 12 months without any tax consequences. You may move money by direct rollover (money is transferred directly from your current 529 plan to a second plan) or by indirect rollover (you request a check for the amount from the current 529 plan and reinvest it in the new plan account within 60 days). Check with your current plan to verify that it will accept a request for a rollover and to determine if any penalties and/or fees will apply to the transaction. (State tax deductions or credits may be subject to recapture in the case of a non-qualified withdrawal.)
1 For more information, contact your tax advisor.
Ugift is an innovative online service that lets account owners invite family and friends to celebrate children's milestones with the gift of college savings. All gifts sent through Ugift are uniquely earmarked and are invested into the beneficiary's 529 account to be used for qualified college and college-related expenses.
If your 529 plan offers Ugift as a feature, it's easy. All you have to do is log onto your 529 account and click on the Ugift link. You'll be brought to the Ugift screen, where you will be given step-by-step instructions.
No. You can print out a coded gift coupon to give to a family member or friend who would like to contribute to your beneficiary's 529 account -- just click on the "Print Coupon" button. The gift coupon is important, because it contains a bar code that links it to your 529 account and event. Your invitees should mail in the gift coupon with their check.
There is no difference in how the coupons look or in how they are processed. The only difference is that when a gift is received with a gift coupon, the 529 plan will check to see if the gift-giver's email address was entered with the invitation. If it is available, a "Thank You" note will be emailed back to the gift giver when the gift is received.
If you do not have an email address, you can print and distribute uniquely coded gift coupons and optional gift certificates, which are available on the 529 plan's website after you log in and set up an event. Note that gift givers who contribute using these gift coupons will not receive an email from the 529 plan upon receipt of their gift, because the plan does not capture the gift-giver's email address with a paper-based gift coupon.
All invitation lists that you've typed into the website over the past 12 months are available on the "View Gift Invitations" page of the website.
Next to each celebration listed on the "View Gift Invitations" page is a link to "Send Additional Invitations." Clicking here will bring you to a new page that allows you to send out invitations to additional guests. Once you have sent these invitations you can track them (and any gifts associated with them) on the "View Gift Invitations" page. Note: The "Send Additional Invitations" will no longer be accessible once the event date has passed.
Go to the "View Gift Invitations" page. There, you will see all gift activity over the past 12 months, including the name of the gift giver, the amount of the gift, and the status of the gift.
Any gift that appears on the "View Gift Invitations" page with a status of "Funded" has been transferred into your 529 account. A status of "Pending" means that it has been received, but has not yet been transferred into your account. Once a gift contribution has been transferred, it will also be displayed in account transaction history.
Gift contributions will be allocated according to the standing allocation on your account at the time the contribution is transferred to the account.
Gift contributions are deposited into a non-interest bearing account and then transferred to your 529 account approximately five business days after the celebration date. If the gift contribution is received less than two business days before the celebration, or if the gift cannot be tied to a specific celebration, then the gift will be held for approximately seven business days for clearing purposes before being transferred into your 529 account.
The gift coupons sent to your family and friends are uniquely coded for your 529 account and celebration.
There may be potential tax consequences resulting from gift contributions invested in your account; you and the gift giver should consult a tax advisor for more information.
As the account owner, do I have to use this process for any contribution from someone other than myself?
No. For plans that allow third-party contributions, family and friends can send in contributions for your beneficiary's 529 account at any time, without your setting up a specific celebration and inviting people to contribute. Ugift is designed to provide a framework for gift contributions around milestones in your beneficiary's life; it also includes messaging and tracking around that celebration. Anyone can make a contribution to the account outside the Ugift service (provided that the plan allows third-party contributions), but the account number must be included with the contribution so that it is invested in the correct account.
Yes. You will receive a confirmation statement once the gift contributions have been transferred into your 529 account.
If you received your original invitation by email, you will receive an email confirming receipt of your gift. Gift givers who are handed or mailed a printed gift coupon will not receive an email.
The emailed invitation includes a link to the gift coupon and a printable gift certificate that the gift giver can fill out and present at the celebration, acknowledging that a gift has been made. Notice of the gift will also appear in the account owner's account record with the gift-giver's name.
As of December 2, 2013 Upromise Investments, Inc., Upromise Investment Advisors, LLC and Upromise Investments Recordkeeping Services, LLC are no longer affiliated with Upromise, Inc., SLM Corporation, Sallie Mae Bank, or its affiliates.