Do I have to invest in the 529 program sponsored by my state?

No, you are not restricted to investing in the 529 plan(s) sponsored by your state of residence. However, there may be state tax advantages and other benefits associated with your state's 529 plan. 

Does my child have to go to a school in the state that sponsors the 529 plan I invest in?

No. Your child can attend an accredited college or university anywhere in the United States - or can also choose to attend select foreign institutions.

Could you explain the tax benefits associated with 529 college savings plans?

Earnings grow federal tax free. This allows your account to grow at a faster rate than if you have invested in a comparable taxable account.

Qualified withdrawals are federal tax free so, all of your money can go toward paying for college and not taxes. The earnings portion of non-qualified withdrawals will generally be subject to federal income tax and a 10% additional federal tax on earnings, as well as to state and local income taxes.

Certain states offer tax benefits: In some states, you can deduct a portion or all of your contributions from your state taxable income. Please see your state plan for details.

Estate and gift tax benefits: Contribute up to $60,000 per child in a single year ($120,000 for electing married couples) and take advantage of five years' worth of tax-free gifts at one time. Contributions are considered completed gifts and are removed from your estate, but you retain control.

Who can be the beneficiary of a 529 college savings plan?

You can open an investment account in a 529 plan for the benefit of any student attending post secondary school in the U.S. and some schools abroad. You can even name yourself as the beneficiary. However, you should consider the limitations on the types of beneficiary changes that may be made without adverse tax consequences when naming the original beneficiary.

If I have more than one child that I want to save for, should I open a 529 savings plan account for each of them?

Yes, you may open a 529 account for each of your children.

Can I change the future college student of a 529 account?

Yes, the owner of the 529 account can name another member of the original student's family as the new future college student at any time. In order for the change to be without adverse tax consequences, the new beneficiary must have one of the following relationships to the original beneficiary:

• Son or daughter;
• Stepson or stepdaughter;
• Brother, sister, stepbrother or stepsister;
• Father or mother (or an ancestor of either);
• Stepfather or stepmother;
• Son or daughter of a brother or sister (i.e., niece or nephew);
• Brother or sister of the father or mother (i.e., aunt or uncle);
• Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law;
• Spouse or spouse of any of the above; or
• First cousin.

What are my options if the student for whom I'm investing does not go to college?

As the 529 account owner, you retain control of the assets in the 529 account, so you decide what to do. Options include:

• Leaving the assets in the 529 college savings plan;
• Changing the future college student to another member of the same family in the same generation as the original beneficiary without incurring federal tax or penalty; and
• Taking a non-qualified withdrawal from the account. The account owner will owe regular income taxes and will incur a 10% penalty on the earnings portion of the withdrawal. (Exceptions to this penalty include withdrawals due to the receipt of a scholarship by the future student or such student's death or disability.)

Which schools are considered qualified institutions for 529 college savings plans?

Qualified institutions of higher education are:

• Accredited public and private colleges, universities;
• Graduate and post-graduate programs;
• Most community colleges; and
• Certain proprietary, trade, and vocational schools.

How will participation in a 529 college investing plan affect eligibility for financial aid?

The Department of Education has confirmed that assets in a 529 plan can be regarded as assets of the parent if the parent is the owner of the account, rather than the designated beneficiary, and have less of an impact of financial aid eligibility. Qualified distributions will not count as income for the designated beneficiary when applying for federal financial aid.