529 college savings plan - FAQ?

Can I open more than one account for different beneficiaries? Yes. Maximum account balances are imposed per beneficiary rather than per account owner. In other words, each beneficiary is eligible for the maximum account balance.

What if the beneficiary of my account decides not to go to college? If the designated account beneficiary elects not to attend college, a new beneficiary can be chosen, provided that the new beneficiary is a member of the current beneficiary's extended family (as defined by the IRC). Any change in beneficiary to a person who is not a qualified family member of the current beneficiary is treated as a nonqualified withdrawal. Alternately, the account owner may elect to take a nonqualified withdrawal from the account, subject to ordinary income tax and a 10% federal penalty on earnings. UGMA/UTMA 529 plan account assets must be used for the benefit of the minor/beneficiary.

What if my beneficiary receives a scholarship? In the event the account beneficiary receives a scholarship, the account owner is allowed a withdrawal for nonqualified expenses in the amount of the scholarship. While the earnings on this withdrawal would be subject to federal and possibly state income tax, the 10% federal penalty normally attached to nonqualified withdrawals would be waived. Any remaining funds in the account can be used to cover educational expenses not covered by the scholarship, or a new beneficiary can be named.

Can my plan beneficiary attend college anywhere in the U.S. ?Yes. Withdrawals can be used at any eligible institution in the country. Eligible institutions include 2-year and 4-year public and private universities, graduate and professional programs, and even some vocational programs. A list of eligible institutions can be found at www.fafsa.ed.gov.

How does investing in a 529 plan affect the beneficiary's chances of qualifying for financial aid?Guidance from the US Department of Education says that a 529 plan is treated as an asset of the parent or other account owner in determining eligibility for federal financial aid. Since assets held by the parents have less impact on federal needs-based student aid eligibility than those held by the child, a 529 plan may affect this student aid eligibility less than would assets held in the child's name or in a custodial account.

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