The benefits of higher education
Studies show that the higher the level of education achieved, the higher the average salary earned and lower the unemployment rate.
A rising bar: Education costs continue to increase
College costs are rising. The average undergraduate cost is now over $24,000.
This trend is unlikely to reverse in the near future.
A larger share of your wallet
Education costs are rising faster than inflation
Over time, college costs have routinely outpaced inflation. As a result, education is taking a bigger piece of overall spending.
The education savings gap
People tend to underestimate how much they need to save for higher education expenses
How do tuition costs stack up?
Tuition costs are rising at a faster rate than common household expenses
Tuition costs have spiked versus other expenses
Cumulative price change (%)
Competition for resources and faculty, and less support at the state level.
Don’t forget, tuition is just the tip of the iceberg
Room and board, books, laptops and clubs should be factored into any budgeting discussions about education.
Books & supplies: $1,240
Room and board: $11,510
Tuition & fees: $26,820
Other expenses: $2,170
Financial aid is getting harder to come by
While costs continue to increase, the pool of available financial aid is decreasing
Annual College Costs1
Total Financial Aid ($B)2
Athletic scholarships help, but they only cover a fraction of education costs
Competition is intense. Less than 2%¹ of high school athletes are granted scholarships. Not something a young athlete should bank on.
- Remember, if a child earns a scholarship, the account owner can always transfer their 529 savings to another family member
- The account owner can also withdraw the amount of the scholarship that was earned without the 10% penalty, or simply use 529 savings to fund other expenses but will be required to pay income tax on account’s earnings
You can help a child change the world when you start with a plan
What is a 529 plan?
A 529 plan is a tax-advantaged savings vehicle within the United States designed to save for future higher education expenses for a specified beneficiary.
What savings options are available to you?
Comparing education savings plans
|Rules||529 Plans||Coverdell Education Savings Account (CESA)||UGMA/UTMA||Taxable savings account|
|Federal income tax||Contributions made with after-tax dollars. Earnings grow tax-free. Withdrawals for qualified education expenses are free from federal income tax||Contributions made with after-tax dollars. Earnings grow tax-free. Withdrawals for qualified education or K-12 expenses are free from federal income tax||Earnings and capital gains are taxed at the minor's tax rate||Fully taxable at account owner's tax rate|
|Federal gift tax treatment||Contributions are treated as gifts; annual gift tax exclusion is up to $15k (single) or $30k (joint) per beneficiary. $75k (single) or $150k (joint) prorated over 5 years||Contributions are treated as gifts, annual gift tax exclusion of up to $15k (single) or $30k (joint) per beneficiary||Gifts and transfers to the minor are treated as completed gifts -$15k (single) or $30k (joint) as an annual gift exclusion||Differs by individual, consult tax advisor|
|Federal estate tax treatment||Amount removed from donor's estate, partial inclusion up to $75k ($150k filing jointly) if donor's death occurs within the 5-year election period||Amount removed from donor's estate||Amount removed from donor's estate unless donor remains as custodian||Differs by individual, consult tax advisor|
|Maximum investment||Determined by program. Scholar's Edge is $500,000||$2,000 per beneficiary per year from all sources||No limit||Not applicable, can be used for any purpose|
|Ability to change beneficiary||Yes, to another member of the beneficiary's family, dependent upon plan||Yes, to another member of the beneficiary's family, dependent upon plan||No, represents a gift to the child||Not applicable|
|Income restriction||None||Ability to contribute phases out for income $95k-$110k (single) or $190k-$220k (joint)||None||None|
What savings options are available to you?
Comparing education savings plans
|Rules||529 Plans||Coverdell Education Savings Account (CESA)||UGMA/UTMA||Taxable savings account|
|Qualified expenses||Tuition, fees, books, computers and related equipment, supplies, special needs, room and board for half-time students, and up to $10,000in tuition expenses at private, public, and religious K-12 schools (state dependent)||Tuition, fees, books, equipment, supplies, special needs, room and board for half-time students, some K-12 expenses||No restrictions||No limit|
|Financial aid impact||If parent is account owner, assessed at up to 5.64% as an asset of the parent||If parent is account owner, assessed at up to 5.64% as an asset of the parent||Counted as the student's asset and assessed at 20%||Counted as assets of the account owner. assessed at up to 5.64% if owned by the parent|
|Investments||Account owner selects the investment portfolio within the plan||Range of securities and investments||Chosen by the custodian until child reaches majority||Chosen by account owner|
|Non-qualifying expenses||May be subject to federal income tax and a 10% federal tax penalty as well as state and local taxes||May be subject to federal income tax and a 10% federal tax penalty as well as state and local taxes||Funds must be used for benefit of the minor||Chosen by account owner|
|Age restrictions||None||Contributions can be made until beneficiary turns 18; account balance must be distributed by 30 days following beneficiary's 30th birthday||Custodianship terminates when minor reaches majority under state law (typically 18 or 21)||None|
Saving for education can help in saving for retirement
How education savings can help with bigger goals
By graduating with less debt, the child in your life can begin investing and planning for life’s other milestones earlier.
A truly flexible savings vehicle
Available to anyone, regardless of income
Key features of a 529 plan
Earnings grow tax-deferred and qualified withdrawals are tax-free from federal taxes and may also be free from state taxes
Contribute up to $15,000 per beneficiary annually ($30,000 filing jointly)
Make a $75,000 contribution ($150,000 filing jointly) that can be treated as being made over 5 years for gift tax recognition purposes
Proceeds can be used at eligible institutions around the country
Qualified expenses have no annual distribution limit
529 plans can now be used for K-12 enrollment ($10,000 limit)
Learn how your savings can potentially grow
The compounding effect of 529 tax benefits
EXAMPLE: Two families invested differently. Family A opened a taxable savings account while the Family B invested in a 529 plan.
Both families opened their savings accounts with an initial deposit of $1,000 and opted for monthly contributions of $150. Both families saved for 18 years, earning 7% on their investment.
Getting the most out of your state benefit
Tax benefits by state
Home of Scholar's Edge 529.
These states do not offer tax deductions or credit for 529 contributions, or have no state income tax.
These states offer tax deductions or credit for contributions to any 529 plan, regardless of state.
In-state Tax Benefit
These states offer tax deductions or credit for contributions to the in-state 529 plan only.
Hover over each state to view the tax benefits per state.
Flexibility for planning now … and in the future
Beyond education savings, 529 plans can help families leave a legacy
When considering whether to use a 529 plan in your estate plan, keep in mind the following key points:
|Contributions||Accelerated gifting||Tax planning||Tax-free withdrawals||Control|
|An individual may contribute up to $15,000 a year ($30,000 for a married couple) per beneficiary without triggering the federal gift tax.1||
Special gift and estate tax treatment allows an individual to contribute up to $75,000 ($150,000 for married couples) in one lump sum per beneficiary, free of federal gift taxes, under a provisions know as "accelerated gifting".
|For tax purposes the Internal Revenue Service considers assets held in a 529 plan as a completed gift and therefore treats them as the beneficiary's assets and NOT the account owner's.||529 plan contributions and investment earnings may be withdrawn federal income tax free if the money is used for Qualified Higher Education Expenses (QHEE).2||The 529 plan owner maintains complete control over account assets and is allowed to make beneficiary changes or even discontinue the account and take the money back.2|
Even more flexibility
No longer just for college
529s can now be used to pay down student loans
According to the SECURE Act, which became law on December 20, 2019, families can now use their 529 college savings plans to repay up to $10,000 in qualified student loans. These can be loans owed by the student or their siblings.
This means even greater flexibility for using 529 savings.
K-12 tuition, another avenue
After passage of the Tax Cuts and Jobs Act in 2018, 529 plans have expanded to distribute up to $10,000 per student per year to cover K-12 tuition incurred at public, private or religious elementary or secondary schools.
The journey from kindergarten to college
Planning ahead is the key. Some tips for using 529 savings for K-12 expenses.
Know your state’s tax handling
Some states have not adopted the Tax Cuts and Jobs Act updates. Withdrawing funds for K-12 tuition payments in a state that doesn’t follow the Federal SECURE Act could subject you to state tax penalties or your ability to claim credits/ deductions could be affected. You may also trigger a 10% penalty on non-qualified withdrawals.
Consider contributing once your child is born rather than when they’re already at school age
Make it a family affair
Get help from family to ensure you’re meeting both K-12 and college education milestones. It’s an excellent legacy planning opportunity
Consider higher contributions
Maximizing your contributions can ensure that you have enough to fund both K-12 and post-secondary education
Ensure your investment strategy is aligned
You may need to switch your savings approach or portfolio. Your financial professional can help you look at the big picture
No matter your educational path, a Section 529 Education Savings Plan Account can help with the journey
Thought 529 plans are just for college tuition? 529s can also cover vocational school tuition and a wide range of other related expenses
Vocational and trade school
Food and meal plans
Computers and software
Special needs equipment
A financial professional can help you save for education … and beyond
A financial professional can help with:
Seeing and planning for the big picture — education savings, retirement planning and legacy planning goals
Helping you select appropriate investments based on your objectives and investment risk tolerance — both active and passive strategies — with the objective of meeting your savings goals
Disciplined investing isn’t easy — your financial professional can offer advice in maintaining your savings plans and focusing on your long-term goals
Myth #1: 529s will affect my child’s eligibility for financial aid
Saving now means potentially borrowing less later
Assume Sophie’s education costs $100,000 and her family saved a portion of that in a 529 plan. This reduced the amount of loans she would have to take, but did not create a large reduction in the amount of financial aid received.
A 529 strategy reduces out of pocket costs and student loans
A college education costs, on average, approximately $104,000 for a four-year, in-state school for tuition and fees, room and board, books and supplies, as well as transportation.
|100% through a 529 plan||50% through a 529 and 50% through student loans||100% student loans|
|Scenario||A family invested $247 monthly for 18 years in a 529 plan||A family invested $123.31 a month in a 529 plan. The student then takes out a student loan for $63,650 (payable over 10 years)||A student finances her entire $104,000 expense through student loans (repaying over 10 years)|
|Years of repayment||−||10||10|
|Total out of pocket||$53,352||$90,285||$127,301|
What are your options for financial aid?
Financial aid is need-based and is determined by:
Cost of attendance
- Reflects the cost of attending a specific school.
- Includes tuition, room, board, and related fees and expenses.
Expected family contribution
- Amount a family is expected to contribute to education costs each year.
- Determined by FAFSA submission, not dependent on specific school's COA.
- Keep in mind: EFC does not always reflect a family's actual ability to pay.
Free Application for Federal Student Aid
- Helps to determine amount of federal aid families are eligible for.
- Used by many public, private, community, and vocational schools to calculate financial aid packages (the amount of aid—whether through grants, scholarships, or loans—offered by a school to a student).
How do your assets impact the EFC?
|Income that counts toward the EFC||50% of adjusted student gross income||22%-47% of available income||If providing financial support in the first two years, reportable on the FAFSA as student income|
|Asset that count toward the EFC||20% of assets for UGMA/UTMA assets, minor trusts and savings bonds||Up to 5.64% of assets such as mutual funds, securities, bank accounts, 529 plans owned by the parent or student, and Coverdell accounts||Not included in FAFSA calculations|
- 529 plans and Coverdell accounts owned by someone other than the parent or student are not required to be disclosed when applying for financial aid. Any money disbursed from the accounts will be reported as income on the FAFSA.
- Life insurance and retirement accounts owned by either the parent or student are also not required to be disclosed but are counted as income on the FAFSA if distributed.
A closer look at applying for financial aid
Free Application for Federal Student Financial Aid (FAFSA®) needs to be applied for every year in college.
- Year 1: Apply in the year before attending college
- Year 2: Apply in Year 1
- Year 3: Apply in Year 2
- Year 4: Apply in Year 3
In year 1 and year 2, consider using 529 plan account owned by parents. Withdrawals from parent-owned 529s not considered student income.
In year 3 and year 4, consider using 529 plan account owned by grandparents. Withdrawals from grandparent-owned and other-owned plans are treated as student income if using in first two years.
Grandparents and generational wealth transfer
Lessen your estate tax burden and empower future generations
- Potentially minimize some tax consequences with 529s
- Move asset out of your estate into a grandchild/beneficiary’s name
- Create a source of education funding that can go from generation to generation
- Account owner retains control
Idea: Consider using your required minimum distributions (RMDs) to fund a 529 plan, minimizing gift tax and growing/compounding tax free.
Myth #2: I just need one 529 for all my children
If you have multiple children, consider opening a 529 plan for each
In reality, there may not be enough time to replenish the funds if multiple children need the funds at once. Or you may be interested in different investment strategies depending upon time to enrollment.
Plan ahead: Work with your financial professional, and consider opening a 529 fund for each child
Myth #3: I can just use my retirement savings for my child’s education savings
The danger of using retirement funds for education is you lose the power of compounding
College withdrawals can jeopardize retirement security
Investment returns make a difference
Save with the help of an experienced asset manager
Principal Global Investors: Scholar’s Edge investment manager
Principal Funds Distributor will provide marketing and distribution services for Scholar’s Edge
- Well positioned to serve organizations and individuals, offering institutional and retirement expertise, guidance, and outcome-based strategies for real-life challenges
- Principal Portfolio Strategies designed the enrollment-based and target risk portfolios to meet a broad range of education savings goals
- Principal Global Investors was ranked the 27th largest manager of worldwide institutional assets, out of 505 managers profile1
Why Scholar’s Edge?
Making brighter tomorrows a reality through smarter choices for education savings
- Deep asset allocation expertise—Principal is the largest provider of active, multi-managed target date funds in the United States1
- Institutional-quality portfolio construction
- Robust and sophisticated glidepath technology
- Comprehensive range of investment options
- Cost efficient solutions—fees are below the industry average
- A capital preservation portfolio
- An ideal opportunity to invest as a family
- Knowledgeable teams supporting Scholar's Edge across various Principal business units
- Extensive tools and resources to support you in the college savings journey
Smarter outcomes through portfolio options
Multi-asset, multi-manager strategies combining the advantages of active management and the cost savings of passive management
Designed for those beneficiaries who are expected to enroll in qualified education programs between the target years of the portfolio.
Seek to achieve long-term growth of capital while preserving capital as they approach their applicable target year of enrollment date.
Provide access to broad asset classes, combining exchange traded funds, mutual funds and life insurance funding agreements.
Allocations gradually becoming more focused toward capital preservation and volatility control as the risk target becomes more conservative.
- Available in A, C and R unit classes. Download our Asset Allocation flyer (PDF).
- We streamlined asset management and account fees, and used passive investments where appropriate, to lower the annual costs of investing in the Year of Enrollment and Target Risk Portfolios. Scholar’s Edge underlying investment expenses, program management and state fees are lower than the industry average.1
- The Scholar’s Edge Capital Preservation Portfolio contains a guarantee by Principal Life Insurance Company that its annual interest rate will be at least one percent.2
Glide path innovation
Creating an asset class mix designed to help manage investment risk at every time frame up to the expected year of enrollment
- Non-linear glidepath designed to minimize volatility in the Year of Enrollment Portfolios before education funds are needed
- Utilizes a number of investment managers and their disciplines – choosing active managers for the asset classes where it matters most
- Active asset allocation and monitoring by dedicated manager research team
Dynamic glidepath, built using:
- Educational statistics
- Average savings rates and forecasts
- Demographic and census data
- Tuition growth forecasts
- Risk assumptions
Benefits of Scholar’s Edge 529 Plan
We provide online resources and tools to easily manage your account across a range of topics:
- Additional contributions
- Investment changes
- Changes to banking instructions
- Changes to delivery preferences
- Profile updates
- Access to education savings resources
- Automatic Investment Programs (AIPs), like payroll direct deposit, allow you to ‘set it and forget it’. Start the process by downloading our payroll direct deposit form (PDF).
We’ve improved Scholar’s Edge to make life’s important choices even easier.
- Comprehensive range of investment options
- Low minimum investment with as little as $1
- High maximum investment of $500,000 per beneficiary
- No income limit – no matter your salary, you can start saving in the Scholar’s Edge 529 Plan
The power of compounding
Time is on your side
Coffee break vs. tax break
Every little bit can make a difference to help a child realize their dreams
Putting it in context ...
It’s easy to give the gift of education with Scholar’s Edge
Opportunities for contribution and gifting
Gift contributions with Ugift®, an easy, free-to-use feature of Scholar’s Edge to help fund your child's education. Friends and family can use your account’s unique Ugiftcode at any time to easily make gift contributions at Ugift529.com.
Join Upromise for free and then buy groceries, shop online, book travel, dine at restaurants, and more—through participating partners. A percentage of your eligible spending will be deposited in your Upromise account. Signing up at Upromise.com is fast, easy, and secure.
You can easily link your Upromise account with your eligible 529 account and have your education savings automatically transferred into your 529 plan.1
Work with your financial professional to make 529s part of your estate planning process. Scholar’s Edge allows you to contribute the following per beneficiary:
• $15,000 individual
• $30,000 filing jointly
• Lump sum over 5 years ($75,000 individual, $150,000 filing jointly)
Contributions to your Scholar’s Edge account may continue until your plan reaches $500,000 per beneficiary.
We can help you do your homework
Additional 529 resources
Scholar's Edge® ("Scholar's Edge" or the "Plan") is operated as a qualified tuition program offered and sponsored by The Education Trust Board of New Mexico (the "Board") and is available to all U.S. residents. Ascensus College Savings Recordkeeping Services, LLC is the Program Manager for Scholar's Edge and Principal Funds Distributor, Inc. is the distributor of Scholar's Edge. The Program Manager and the Distributor are not affiliated organizations.
Accounts in Scholar's Edge are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The securities held in the Plan accounts are neither FDIC insured nor guaranteed and may lose value. The Board has no legal obligation to provide financial support to the Plan or Plan accounts, and you should not expect that the Board will provide financial support to the Plan at any time. Account Owners do not invest in, and do not have ownership or other rights relating to the underlying investments held by the Plan's investment options. The underlying investments are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.
This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal and state tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.
Some states offer favorable tax treatment to their residents only if they invest in the home state's own plan. Investors should consider before investing whether their or their designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program, such as financial aid, scholarship funds, and protection from creditors, and should consult their tax advisor.
Before investing in the Plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with the Plan's municipal fund securities.The Plan Description and Participation Agreement contains this and other information about the Plan, and may be obtained by asking your financial advisor, by visiting scholarsedge529.com or calling 1.866.529.SAVE (1.866.529.7283). Investors should read these documents carefully before investing.
Scholar's Edge® is distributed by Principal Funds Distributor, Inc. a FINRA Member
620 Coolidge Dr., Suite 300
Folsom, CA 95630
Scholar's Edge® and the Scholar's Edge® Logo are registered trademarks of The Education
Trust Board of New Mexico used under license.
Ugift is a registered service mark of Ascensus Broker Dealer Services, LLC. Upromise is a registered service mark of Upromise, Inc.
Assets under management attributed to Principal Global Investors includes the asset under management of the following members of Principal®: Principal Global Investors, LLC; Principal Real Estate Investors, LLC; Principal Real Estate Europe Limited and its affiliates; Spectrum Asset Management, Inc.; Post Advisory Group, LLC; Columbus Circle Investors; Finisterre Capital, LLP; Origin Asset Management, LLP; Claritas Investimentos;Principal Global Investors (Europe) Limited; Principal Global Investors (Singapore) Ltd.; Principal Global Investors (Australia) Ltd.; Principal Global Investors (Japan) Ltd.; Principal Global Investors (Hong Kong) Ltd., and include assets where Principal Global Investors and its affiliates provide model portfolios.
All figures shown in this document are in U.S. dollars unless otherwise noted. All assets under management figures shown in this document are gross figures and may include leverage, unless otherwise noted. Assets under management may include model-only assets managed by the firm, where the firm has no control as to whether investment recommendations are accepted, or the firm does not have trading authority over the assets.
©2020 Principal Financial Services, Inc. Principal, Principal and symbol design and Principal Financial Group are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company.