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529 College Savings Program FAQ's |
| Opening An Account: |
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Who can open an account? |
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Anyone of legal age with a valid social security
number or federal taxpayer identification number who is a US citizen
or resident alien can open an account. A state-sponsored
program does not require the owner to reside in the state where the
plan is maintained. |
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Do I need to open separate accounts for each
of my children? |
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Yes. Each account may have only one
beneficiary, but you can open accounts for as many beneficiaries as
you'd like. |
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Who can be a beneficiary? |
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Any individual with a valid social security number
or federal taxpayer identification who is a US citizen or resident
alien qualifies as a beneficiary. |
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Can I change the beneficiary? Who can I
select as my new beneficiary? |
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The account holder can change the beneficiary at any
time. If you do make a change, the new beneficiary must be a
member of the family of the previous beneficiary, as defined by
federal tax law in order to prevent a non-qualified distributor.
For purposes of changing the designated beneficiary, a "member of
the family" includes an individual who is related to the designated
beneficiary as described below:
 | Father or mother, or an ancestor of either |
| Son or daughter, or descendant of either |
| Stepfather or stepmother |
| Stepson or stepdaughter |
| Brother, sister, stepbrother, or stepsister |
| Brother or sister of the father or mother |
| Brother-in-law, sister-in-law, son-in-law,
daughter-in-law, father-in-law, or mother-in-law |
| Son or daughter of a brother or sister |
| Spouse of the designated beneficiary or any of the above
individuals |
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Starting in 2002, this list will be expanded to include first
cousins.
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Does the account owner have to be related to
the beneficiary? |
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No. In addition to opening an account for your
child, a stepchild, niece or nephew, you may open an account for a
friend or anyone.
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How Much Can I Contribute? |
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Contributions to a QTP on behalf of
any beneficiary cannot be more than the amount necessary to provide
for the qualified education expenses of the beneficiary. There are
no income restrictions on the individual contributors.
You can contribute to both a QTP and a Coverdell
ESA in the same year for the same designated beneficiary.
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Are Distributions Taxable?
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The part of a distribution
representing the amount paid or contributed to a QTP does not have
to be included in income. This is a return of the investment in the
plan.
The designated beneficiary generally does not have
to include in income any earnings distributed from a QTP if the
total distribution is less than or equal to adjusted qualified
education expenses (defined under
Figuring the Taxable Portion of a Distribution, below).
Note. Before 2004, the
beneficiary had to include in income any earnings distributed from
a QTP established and maintained by an eligible educational
institution.
Earnings and
return of investment. You will
receive a Form 1099-Q, Payments From Qualified Education Programs
(Under Sections 529 and 530), from each of the programs from which
you received a QTP distribution in 2004. The amount of your gross
distribution (box 1) shown on each form will be divided between
your earnings (box 2) and your basis, or return of investment,
(box 3). Form 1099-Q should be sent to you by January 31, 2005.
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Can I Coordination With Hope
and Lifetime Learning Credits? |
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A Hope or lifetime learning credit
(education credit) can be claimed in the same year the beneficiary
takes a tax-free distribution from a QTP, as long as the same
expenses are not used for both benefits. This means that after the
beneficiary reduces qualified education expenses by tax-free
educational assistance, he or she must further reduce them by the
expenses taken into account in determining the credit. |
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| Using Your Money |
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What are qualified higher education expenses? |
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Qualified higher education expenses include:
tuition, fees, supplies, books, required equipment, and room and
board.
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What if my child decides not to go to college
or drops out at some point? |
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If the beneficiary does not use the money,
| The account can be re-designated to another beneficiary
who is a member of the family without tax consequences |
| The funds can remain in the account until the
beneficiary returns to school |
| You can close the account and receive the balance at any
time. There is a federally mandated penalty for
withdrawing funds this way, and earnings will be taxed at
the account owner's tax rate. The penalty is waived if
the distribution is due to the death or disability of the
beneficiary or if a scholarship or nontaxable grant is
awarded to the beneficiary. |
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| For More information on 529 Plans (QTP's)
see Publication 970, Chapter 8.
Qualified Tuition Program (QTP)
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| State tax deductibility and allowable deposit amounts
vary by state. Required minimum deposits vary by fund group.
Please consult with your financial representative for further information. |
| Always consult with a professional tax advisor to determine your
potential tax consequences. |
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