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529 plan FAQ

TIAA-CREF has compiled articles in order for you to explore answers to questions that might be more specific to your situation.

From insight to how to rollover your plan, to tips specific to grandparents, and even a customized calculator to help you figure out your specific college savings needs-- the information is here for you.

If you have questions,
TIAA-CREF has answers

There's a lot to know about 529 plans, and TIAA-CREF understands that you still might have questions.

But don't worry.

You can always call a TIAA-CREF education specialist at 866.717.9452

529 plan "what if's"

These are some of the first—and most important—questions you may ask when you consider opening a 529 account: What if my child or grandchild isn't "college material"? Or the flip side: What if he or she gets a full-ride scholarship and doesn't need my money? Fortunately, there are other ways to use your 529 money, or even withdraw it.

Wait it out. Some kids are late bloomers. If there's a chance your beneficiary might attend college eventually, leave the money in your 529 account for as long as the state allows. After gaining some life experience, your child or grandchild might decide that post-secondary education is a good idea after all.

Expand your definition of college. 529 plans aren't just earmarked for use at traditional four-year college or universities. Your beneficiary can also use the funds for qualified educational expenses at two-year vocational and technical schools—even for professional golf schools. Confirm with your tax consultant to be sure.

Transfer it to another eligible beneficiary. You're allowed to transfer the assets to another eligible family member of the original beneficiary. That means you could help pay tuition for a beneficiary's sibling, cousin, stepchild—or possibly even yourself, if you're a relative and you'd like to go back to school.

Withdraw your money. Yes, you can take back your money if it's not used. You may owe federal and state taxes, as well as an additional 10% tax penalty on the earnings. And of course, the value of your account may have fluctuated (like any investment account) over time. However, if you close your 529 plan because your beneficiary doesn't need your money because he or she earns a full scholarship, becomes disabled or dies, the 10% tax penalty is waived.

Used with permission 8/1/12 C6346

Rolling over your 529 plan

Here’s what you need to know about transferring funds from one 529 to another and rolling over money from a Coverdell account into a 529.

If you're dissatisfied with your college savings plan—perhaps you're seeking more investment options or lower fees—transferring funds between 529 plans and from Coverdell accounts to 529s isn't difficult. Consult your tax advisor regarding your specific situation, follow the transfer requirements and you should avoid any problems with nonqualified distributions and unexpected income taxes. Here are the specifics:

529 Plans to 529 Plans
You can roll over the assets of one 529 plan to a different 529 plan only once every 12 months if the beneficiary is the same in both plans. You can make the transfer at any time if you're naming a different family member as the beneficiary.

There are two types of 529-to-529 rollovers: direct and 60-day.

  • With a direct rollover, you instruct the original plan's trustee or custodian to transfer the account's funds directly to the new trustee or custodian. If you change beneficiaries, the new beneficiary must be a family member of the original beneficiary.
  • With a 60-day rollover, you liquidate the original plan and withdraw the cash. You then have 60 days to deposit the funds in a new 529 plan in order to avoid taxes and penalties. If you change beneficiaries, the new beneficiary must be a family member of the original beneficiary.

There may be state income tax consequences to a 529-to-529 rollover. If you received a deduction to enroll and invest in your state's plan, you may have to pay back that deduction if you switch to another state's plan. Check your plan for details.


529 plans and financial aid

You can contribute to a 529 plan for your grandchild in two ways:

1. The parent (or your grandchild) owns the account and you add money to it.
2. You own and fund the account, with your grandchild as the beneficiary.

If the parent/grandchild owns the account, you can deposit money in the account but you won’t have control over how the funds are invested or distributed. That’s up to the owner.

The good news: “Your gifts to a dependent-child or parent-owned 529 plan have a negligible impact on financial aid award eligibility,” says college financial aid expert Mark Kantrowitz, publisher of Edvisors Network, a group of more than a dozen websites about college admissions and financial aid.

Here’s why: 529 accounts owned by either a parent or dependent child are considered “parental assets” in financial aid calculations, and your contributions are part of that account. When it comes to determining financial aid awards, parental assets are treated quite favorably: Parents are only expected to contribute up to 5.64% of their assets toward college bills, according to calculations for the Free Application for Federal Student Aid (FAFSA).

Students, on the other hand, are expected to contribute 20% of their assets toward their college bills. A 529 plan owned by an “independent student” (no longer considered a dependent of his or her parents), is considered a student asset for financial aid purposes. So grandparent contributions to this type of 529 plan can reduce a grandchild’s financial aid options by up to 20%. Not terrible, but still something to consider.

If a grandparent owns a 529 account, the situation can be trickier. “These funds essentially have 10 times the impact on financial aid formulas compared to parental assets,” warns Kantrowitz. As of July 2009, money distributed from a grandparent’s plan to help pay a student’s college bills is considered “untaxed student income” and must be reported on the following year’s FAFSA form. Since students are expected to put half of their income (which is different from “assets”) toward college bills—50 cents of every dollar—this can significantly reduce their aid eligibility.

Kantrowitz suggests these options for improving your grandchild’s chances of getting grants, loans or scholarships if you own the 529 plan account:

Delay 529 plan withdrawals for your grandchild until after January 1 of his or her junior year in college. Your grandchild files his or her final FAFSA form that spring (reporting income and distributions from the previous calendar year), so your 529 distributions never need to be reported.

or

Transfer ownership of your 529 plan to a parent or your grandchild. If you have a significant amount saved in your plan or your grandchild needs your 529 funds sooner than the spring of her junior year, this is a good solution. If the parent or dependent child takes ownership of the account, it becomes a parental asset in financial aid formulas. If an independent child takes ownership, it becomes the student’s asset. In both cases, the plan will be counted more favorably in financial aid calculations than it would be if a grandparent owned it. Some states won’t allow you to change 529 account owners. In that case, Kantrowitz suggests transferring your plan to a state that does allow changes, then making the ownership transfer.

or

Set up a custodial 529 plan, with you as custodian and your grandchild as the owner/beneficiary. This works wells for grandparents who want control of 529 funds and distributions, but don’t want to impact financial aid. Custodial accounts are technically considered a parental asset in financial aid formulas (again, favorable treatment), even though parents have no control over the account.

Since these 529 decisions can be complex, check with your financial or tax advisor to be sure you understand your choices and their implications.

Used with permission from Dow Jones 5/20/13
C# 11332

The 411 on 529 fees

What you're likely to see in your plan's disclosure


529 plans can incur a variety of expenses.

As an investor, your goal is to find a plan that meets your needs for the lowest possible cost. Fees vary widely among plans and within a plan's investment options, so you need to compare costs for the plans and investment options you're considering.

The best source of information on a plan's fees is its disclosure booklet, which you'll find at the plan's website.

The chart to the right lists the fees that you need to consider before investing.

Fee Description
Sales charges for broker-sold plans These can be: 1) Initial sales charge (load) as a percentage of the amount you invest; 2) Deferred sales charges imposed when you withdraw money from an investment option; or 3) a combination that can include front- and back-end sales charge and other expenses.
Enrollment fees Charged by some plans as a one-time fee when you first enroll. Plans often reduce or waive this fee for in-state residents.
Account maintenance fee Some plans charge this fee if your account balance falls below a specific amount, for example. They may be reduced or lowered for plan-state residents. The fee is usually a specific dollar amount: $30 per year, for example.
Program management fee This fee compensates the plan manager for providing services to the plan. These services can include investment advice, accounting, distribution and marketing, for example.
Administrative fees Some plans charge a fee to help pay for the plan's operation of the plan, usually charged as a percentage of portfolio assets.
Underlying fund expenses Each investment portfolio in the plan pays a proportional share of the fees and expenses the plan's mutual funds incur, such as investment management fees and other expenses.
Investment management fees Paid to the investment manager for managing the 529 plan's portfolios. The fee is charged as a percentage of portfolio assets.

Fight the fees

Advisor-sold 529 plans charge fees for their services—and they can be high.

You have two options for investing in a 529 savings plan: "direct-sold" and "advisor-sold." In a direct-sold plan, such as those managed by TIAA-CREF Tuition Financing, Inc., you invest directly in the plan. Advisor-sold plans require you to invest through a financial advisor, brokerage firm or other intermediary.

The option you choose can have a significant impact. Direct-sold plans don't impose initial sales charges, so more of your investment goes into your account. Costs also affect your plan's growth over time because advisor-sold plans tend to be more expensive. A plan's costs matter: They influence how much money you have to invest and how much you'll have available when you're ready to take distributions from your account.

How much do costs vary?
Consider these findings from the Coalition of Mutual Fund Investors' January 2012 study, "Comparison of Investor Fees and Costs in Section 529 College Savings Plans" 

  •  When evaluating total investment expenses—including initial sales charges and annual account maintenance fees—over a 10-year period, the cost of a $10,000 investment (with an assumed annual return of 5%) averaged $712 for direct-sold plans.
  •  The 10-year cost of a $10,000 investment (with an assumed annual return of 5%) for broker-sold shares with upfront sales charges averaged $1,944. Taken together, the average costs for advisor-sold plans were 2.73 times higher than the average costs for direct-sold plans over a 10-year period.

529 Plan Comparison Tool

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