Question:
What is a 529 plan?
Answer:
A 529 plan is a tax advantaged investment account that is used specifically to invest your money to pay for college. There are two types of 529 plans: the 529 College Savings Plan and the 529 Prepaid Tuition Plan.
Question:
How do I open a 529 college savings plan account?
Answer:
There are two ways to open a plan account. You can either purchase a plan directly from its state sponsor (online or via mail) or through a financial advisor.
Question:
Can anyone open a 529 savings account? What about grandparents?
Answer:
Yes, any U.S. resident can open a 529 savings account, regardless of income level or state of residence.
Question:
Can I invest in more than one state's 529 college savings plan?
Answer:
Yes, it is possible to have multiple 529 plans in different states.
Question:
Are there age or income limitations for participating in a 529 savings plan?
Answer:
Anyone can participate in a 529 plan regardless of his or her income. However, most plans require the account owners to be of legal age.
Question:
Who can contribute to a 529 savings plan account?
Answer:
Anyone can contribute to a 529 account as long as the account hasn’t reached its maximum contribution limit. Contribution limits vary by plan.
Question:
Can you change investment options once you have opened an account?
Answer:
Yes. You can make changes to your existing investment options once per year (twice in 2009) without a penalty. You can also make investment changes at any time with new money that’s contributed to the account.
Question:
What is the minimum initial investment? What's the maximum?
Answer:
The minimum and maximum initial investment varies from plan to plan. There are some 529 plans that allow you to open an account with as little as $15, and the maximum contribution limits can be as high as $350,000. Check directly with the 529 plan to determine the initial and maximum investment contribution limits.
Question:
Can I roll over money from one 529 plan to another 529 plan?
Answer:
Yes, you can roll over from one plan to another once per year. To avoid a federal taxable event, you have to invest the money into the new plan within 60 days of the withdrawal. Or you can have the new plan manager directly receive the money from the former plan.
Question:
Can I transfer my child's existing Coverdell account into a 529 college savings plan?
Answer:
Yes, you can transfer funds from a Coverdell account to a 529 savings plan without incurring taxes.
Question:
Can I transfer my child's existing custodial account (UTMA/UGMA) into a 529 savings plan?
Answer:
Yes, you can transfer the funds from an UTMA/UGMA account into a 529 plan. The assets must be first converted to cash and then put into the 529 plan. There may be certain UGMA/UTMA conditions that apply as a result of the transfer, such as taxes that you might have to pay. Also, the beneficiary listed on the UGMA/UTMA account must also be on the 529 plan (you cannot change beneficiaries). You should consult with a financial or tax advisor before moving the funds.
Question:
If I open a 529 savings plan in a certain state, will my child need to go to a school in that state?
Answer:
No, the money from a 529 plan can be used to pay for qualified education expenses at eligible higher education institutions. This includes most two-year and four-year colleges and universities, vocational and technical schools, graduate schools, professional, medical and law schools.
Question:
Will a 529 plan affect my child's ability to qualify for financial aid?
Answer:
Since assets in 529 plans are treated as assets of the account owner when determining eligibility for financial aid, the impact on a child’s ability to get aid is lower than if the assets were in the name of the child. However, certain exceptions apply.
Question:
What are 529 plan "qualified higher education expenses"?
Answer:
Qualified higher education expenses include tuition, required fees, books, supplies, and equipment required for attendance. Room and board expenses are also eligible when certain eligibility requirements are met. In 2009 and 2010, you can also use 529 funds for computers and computer technology (i.e. educational software and Internet service). Also, the expenses that are necessary for attendance for a special needs student are eligible.
Question:
Can the money be used at a foreign college?
Answer:
You can use a 529 plan to pay for educational expenses at some foreign colleges. To find out which schools, check the Federal School Code Search:
http://www.fafsa.ed.gov/FOTWWebApp/FSLookupServlet
Question:
Can I use 529 proceeds for my own education?
Answer:
Yes, you can use a 529 plan to pay for your own education. However, there may be certain 529 plans that have age limitations for the beneficiary and require that the account funds be used by a certain time after the account is opened. Check with the individual plan for further information.
Question:
What if I die while money is still in the account?
Answer:
As an account owner you can name a "successor," a person that will take over the management of the account if the owner dies. However, if the account owner dies without naming a successor, the account will be transferred to a person specified in the original account owner's will. If there is no will, then the ownership of the account will be decided according to the state laws of the plan. The transfer of ownership after death varies from state to state.
Question:
What if I want to borrow from the account or use it as collateral?
Answer:
You are not allowed to borrow from the account or use it as collateral. If any unqualified withdrawals are made from a 529 plan, you may have to pay certain penalties and taxes.
Question:
Do I have to have a 529 account in my own state?
Answer:
The answer depends on the type of 529 plan you own. With a 529 college savings plan, you can have an account in any state that offers a 529 plan. However, you should check your own state plan first to weigh potential state tax benefits or scholarship opportunities versus advantages other state plans may offer. On the other hand, 529 prepaid tuition plans have residential requirements (with the exception of the Independent Prepaid Plan).
Question:
What is the difference between an "account owner" and a "beneficiary"?
Answer:
An account owner is the person who opens the account and controls the investments in the 529 plan. The beneficiary is the person whose education expenses will be paid from the plan. An account owner sets up the plan on behalf of a beneficiary. However, an account owner can also be the beneficiary of a 529 plan.
Question:
What are the tax benefits of 529 plans?
Answer:
Tax benefits of 529 plans include tax-free growth of earnings in a plan and federal tax-free withdrawals as long as funds are used for qualified college expenses. If you open a plan in your home state, you may also receive certain state tax benefits.
Question:
Can I claim a federal income tax deduction based on my contributions into a 529 plan?
Answer:
No, contributions to a 529 plan are made with post-tax dollars.
Question:
Can I claim a state income tax deduction based on my contributions into a 529 plan?
Answer:
Some states offer a tax deduction to their residents. In most cases, the deduction is applicable only if the resident invests in the home-state plan, although some states allow you receive the tax benefits regardless of which plan you choose.
Question:
Will I incur the gift tax if I contribute to a 529 plan?
Answer:
Only if you give more than $13,000 per year. However, if you give more than that, there are some ways that the tax code allows you to avoid the gift tax over a period of time. Check with an accountant or tax attorney for additional information.
Question:
Are withdrawals from a 529 plan exempt from federal income tax?
Answer:
Yes, as long as the funds are used for qualified college expenses, such as tuition, fees, room and board, books, and computer equipment.
Question:
Who can be a beneficiary?
Answer:
Generally, anyone can be a beneficiary of a 529 plan and you do not have to be related to the beneficiary. You can open an account for your child, a niece, a grandchild, a friend – even yourself.
Question:
Can a beneficiary have more than one account?
Answer:
Yes, there can be more than one 529 account for a beneficiary. For example, you can have an account set up for your child, a grandparent can open a different account for them, and other family members and friends can also open an account on behalf of your child.
Question:
Can I change the beneficiary on my 529 plan?
Answer:
Yes, you can typically change the designated beneficiary at any time. To avoid tax consequences, the change of beneficiary must be to another eligible family member. If the new beneficiary is not a member of the family of the old beneficiary, the change is treated as a nonqualified distribution to the account owner and may trigger a taxable event.
Question:
Is there an age limit for the beneficiary?
Answer:
Generally, there are no age limits for the beneficiary of a 529 plan. However, this can vary depending on the plan, so it’s important to check with the plan.
Question:
What if my beneficiary receives a scholarship?
Answer:
If the beneficiary receives a scholarship, you can withdraw an amount equal to the value of the scholarship from your account. Earnings on the amount you withdraw would be taxed at your tax rate but will not be subject to an additional 10% federal tax. You could also choose to change the beneficiary of your account.
Question:
If my child is in high school is it too late to open an account?
Answer:
You can open a 529 college savings account if your child is in high school since there are generally no restrictions on the age of the beneficiary.
Question:
What happens if the beneficiary decides not to go to college or can't use all the funds?
Answer:
As the account owner, you always have control of your withdrawals. If the beneficiary chooses not to attend college, you have three options: 1) You can keep the funds in the account. Since there are no age restrictions on the investments, the money will remain available in the future if the beneficiary changes his or her mind about school. 2) You can change your beneficiary at any time, provided that your new beneficiary is a qualified family member. You should consult your tax advisor to determine whether this may create a taxable gift. 3) You can make a nonqualified withdrawal; however, earnings will be subject to applicable taxes and a penalty.
Question:
What if the beneficiary becomes disabled or dies?
Answer:
If the beneficiary becomes disabled or dies, the money is refunded to the account owner. Earnings are taxed as ordinary income but the 10% penalty does not apply. Or, you can change the beneficiary to another eligible beneficiary.
Question:
How many beneficiaries can I have on an account?
Answer:
You can only have one beneficiary on a 529 account. However, you can have more than one 529 account for the same beneficiary.
Question:
What is a 529 prepaid tuition program?
Answer:
Sometimes known as a Qualified Tuition Program, 529 Prepaid College Tuition Plans are designed to allow you to pre-purchase all or part of the tuition at a public in-state college or university based on today’s tuition rates.
Question:
How do I open a prepaid tuition plan?
Answer:
In most cases, you can enroll online or mail in your account application. Most prepaid plans have specific enrollment periods during which you can open new accounts.
Question:
What are the eligibility requirements to participate in a prepaid tuition plan?
Answer:
Your eligibility to participate in a prepaid tuition plan varies from state to state. Most of the plans, however, require that both the account owner and the beneficiary be residents of the same state where the plan is opened. Check with your state to learn more about any other restrictions.
Question:
Can more than one person make contributions to a prepaid tuition account?
Answer:
Yes, anyone can contribute money to a prepaid tuition account. Check with your specific prepaid plan to find out if there are any special procedures for outside contributions.
Question:
What happens to my prepaid tuition plan if my child receives a full or partial scholarship?
Answer:
There are several options, depending on the amount of the scholarship.
You can use any amount in the prepaid plan that the scholarship does not cover.
If it is a full scholarship, you can hold the money in the prepaid account for future use.
Any unused amount can be transferred to another beneficiary.
A refund can be made to the account holder. However, it will be subject to penalty fees and taxes.
Question:
Does a prepaid tuition account guarantee college admission or in-state tuition?
Answer:
No, a prepaid tuition plan does not guarantee that the child will get admitted to college or that you will be eligible for in-state tuition.
Question:
Can a prepaid tuition account be rolled over to another 529 program?
Answer:
Usually you can roll over a prepaid tuition plan into another 529 plan. You can decide to roll over to another plan keeping the same beneficiary or you can roll over for a new beneficiary (qualified member of the original beneficiary's family). There may be other conditions, so it is best to check with your individual prepaid tuition plan.
Question:
Are there any tax benefits for prepaid tuition plans?
Answer:
There are two primary tax benefits. First, funds in a plan grow federal tax-deferred. Second, if funds are withdrawn for qualified college expenses, they are free from federal income tax. In addition, some states offer an income tax deduction. Check with your state plan to identify potential tax benefits.
Question:
How do I know which schools are eligible for the prepaid tuition plans?
Answer:
Check directly with the plan or with the school.
Question:
I probably don't qualify for aid. Should I apply for aid anyway?
Answer:
Even if you think you do not qualify for financial aid, you should still apply. The Free Application for Student Aid (FAFSA) is used by most colleges to determine if you are eligible to receive financial aid, whether that aid comes from the federal government of from non-federal sources that provide scholarships, grants, and private loans.
Question:
Do I need to be admitted before I can apply for financial aid at a particular university?
Answer:
No, you can apply using the Free Application for Student Aid (FAFSA) as early as January 1, prior to the start of the academic school year.
Question:
Do I have to reapply for financial aid every year?
Answer:
Yes, you will have to apply for financial aid using the Free Application for Student Aid (FAFSA) for every year you plan to attend school.
Question:
How do I apply for a Pell Grant and other types of need-based aid?
Answer:
In order to be eligible for a Pell Grant and most need-based aid, you will have to complete the Free Application for Student Aid (FAFSA). You will automatically be considered for these types of aid after you complete the form.
Question:
Are my parents responsible for my education loans?
Answer:
No, they are not responsible for student loans that you take out yourself. However, parents can apply for PLUS Loans (Parents Loans) or take out private loans on your behalf. These are the loans that your parents will be responsible for paying back. Otherwise, you are responsible for the repayment of student loans.
Question:
I got an outside scholarship. Should I report it to the financial aid office?
Answer:
Yes, you have to report all outside scholarships to your school's financial aid office. Contact the financial aid office to find out more information on their outside scholarship policy.
Question:
Where can I get information about federal student financial aid?
Answer:
There are a number of resources where you can obtain information about federal student financial aid. Our Financial Aid Resources page has a list of resources and links. You can also contact the U.S. Department of Education for information on federal financial aid.
Question:
Where can I get a copy of the FAFSA?
Answer:
You can find a copy of the Free Application for Student Aid (FAFSA) on the FAFSA website: http://www.fafsa.ed.gov/
On the site, you can fill out and submit the application online.
Question:
Who is eligible to receive federal student aid?
Answer:
There are a number of eligibility requirements that you have to meet in order to receive federal student aid. Click here for a list of requirements.
Question:
If I want to apply to more than one school, should I submit more than one FAFSA?
Answer:
You only have to fill out one FAFSA per academic school year. The information you provide on the FAFSA will be sent to all the schools that you specify on the application. If you need to add a school, you can make the changes at a later date online.
Question:
Who determines how much aid I will receive?
Answer:
The federal government uses the financial and other information that you provide on the FAFSA to determine a family's Expected Family Contribution (EFC),the amount of money a family is expected to contribute towards paying a student's college expenses. Colleges then use the EFC to determine how much a student may receive to attend their school.
Question:
How is Expected Family Contribution (EFC) calculated?
Answer:
The EFC is calculated based on a federal formula. The information you provide on the FAFSA, such as your family resources (both a student's and parents' income and assets), family size, the number of people in your family that are in college, and whether you are a dependent or independent student are used to calculate the EFC.
Question:
What is an award letter?
Answer:
A financial aid award letter outlines the total amount of financial aid (federal and nonfederal) such as scholarships, grants, loans, and/or work-study that has been awarded to a student for an academic year. Each school that accepts a student will send out a financial aid award letter to the student, usually in mid-April.