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Who can open an account?
Generally, anyone can establish a Section 529 savings / investment plans for any other person, even for him or herself. This allows a person to save for their continued education in graduate school or professional school later in life. It’s not just a child’s future education. You should consult the individual state program(s) to determine specific eligibility requirements that may apply.
Do 529 savings / investment plans have income limitations?
There are no income limitations on a person’s ability to contribute to an account other than the lifetime maximums each state designate for its program.
Can an account owner withdraw the money without paying for college costs?
Yes, the account owner can withdraw all the funds in an account at any time. However, this will be classified as a “non-qualified withdrawal” and will result in the account owner owing income taxes on the earnings on the account and an additional 10% penalty for withdrawing the money and not using them for qualified higher education expenses.
Once an account is established, who controls the investments?
Each state has developed a program designed for the benefit of its residents. Many states have chosen to contract with an investment manager to work with the state to develop investment portfolios and options that will help investors meet their college savings needs. Federal law prohibits the investor from having direct control over the selection of specific investments; therefore the state and the investment manager typically offer a large number of savings options for the investor to choose from, when they open an account.
Who can contribute to an account?
Generally, anyone can make a contribution to an account for any beneficiary. However, you should contact the program of your choice to determine the specific rules that apply, you may find that you will be eligible for specific state tax incentives by being recognized as the account owner.
What are the most common investment options offered by Section 529 savings / investment plans?
The most common investment option is the age-based allocation strategy, a strategy in which the age of the beneficiary and his / her year of matriculation determine the specific mix of investments. As the child ages, the investment mix becomes less risky, increasing the likelihood that the money that has been saved will be available when it is needed.
There are many other options available, including 100% equity funds, fixed income funds, stable value funds, as well as a variety of equity and fixed income options within many plans.
Can you change investment options once you have opened an account?
According to federal law, the investment option chosen for an account can be changed one time each year. However, each time a new contribution is made to an account, the investor can select a different investment option for the new contribution into the plan.
Can a savings / investment account be rolled over to another 529 program?
Generally rollovers are allowed. For instance, if the beneficiary of the account decides not to attend a post-secondary institution, the account owner can typically transfer funds in the account to another eligible beneficiary. To avoid penalty and income tax, the new beneficiary must be a member of the family of the original beneficiary. Additionally, you should check with the program you participate in to determine if there are other requirements that may apply.
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