Get answers to frequently asked questions about 529 plans, Scholar’s Edge 529, and ways to save for education.
Frequently asked questions
A 529 plan is a tax-advantaged savings plan. Based in the United States, a 529 plan is designed to save for future education expenses for a specified beneficiary.
Scholar’s Edge 529 offers a practical way of approaching education savings. Plan highlights include:
- Streamlined portfolio options: Our experienced investment managers review return forecasts, risk assumptions, tuition and cost growth rates, average account balances, risk tolerance, and average savings rates to create our portfolio options.
- Asset allocation expertise: Our plan is managed by Principal Global Asset Allocation (PGAA), a global asset allocation boutique of Principal Global Investors. PGAA uses the same insights for Scholar’s Edge that it uses to help their retirement plan clients successfully save for retirement.
- Lower cost: We have selected mutual funds and exchange traded funds with generally lower investment expenses than what were used by the previous portfolio options. This helps to reduce some of your investment costs.
- Gifting opportunities: We offer access to Ugift and Upromise. Ugift allows you to easily share your 529 plan account information with family, friends, and coworkers, giving them the opportunity to contribute online. Upromise lets members earn back a percentage of qualified spending, which can be deposited into their 529 account.
- Flexible savings opportunities: You can open an account with just $1. Our plan has a maximum contribution of $500,000 per beneficiary (higher than many other plans in the industry), helping you maximize your savings potential.
Any person with a valid Social Security number can be the beneficiary of a 529 plan. The beneficiary and the account owner don’t need to be related. An account owner can open a 529 plan for themselves or a family member or friend.
An account owner may change the beneficiary at any time. There are no tax consequences if you change the beneficiary to a family member of the current beneficiary. However, you should consult with your tax professional regarding your specific circumstances.
Any person over 18 with a valid Social Security number may open an account. The account holder selects the investment options, the beneficiary, and requests the distribution of funds.
Yes. The account owner can roll over funds from one 529 plan to another with certain limitations. If you are a current account owner, download our rollover form or contact your financial professional.
Yes. A 529 plan can be used for four-year colleges and universities, vocational school, community college, some foreign institutions, and qualified kindergarten through 12th-grade tuition.
There are several types of savings options available:
- 529 plans: a tax-advantaged savings plan. Based in the United States, a 529 plan is designed to save for future education expenses for a specified beneficiary. 529 plans are operated by a state or educational institution and provide tax-free growth and withdrawals for qualified expenses. The account will be considered an asset of the account owner, not the beneficiary.
- UGMA/UTMA: are custodial accounts created by parents or grandparents for a child’s education, using the child’s lower tax rate. There is no investment limit, but the parent/grandparent acts as trustee under the Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). The account will be considered an asset of the child.
- Coverdell Education Savings Accounts (CESAs): a saving account used to pay education expenses for a stated beneficiary. They provide tax-free growth and withdrawals for qualified expenses. The maximum contribution is $2,000 per year. These accounts are only available to families below a specific income level.
- Taxable savings account: an account set up with after-tax dollars to save for anything, including education. Income earned is taxable annually at the account owner’s tax rate.
- Series EE US Saving Bonds: The interest from these bonds is tax-free if used for qualified higher education expenses. Income limits of the owner will apply.
The cost of college continues to rise, so it’s important to begin saving as soon as possible. It’s never too early or too late to start.
Qualified expenses include:
- Tuition and fees
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- According to the SECURE Act, you can now use 529 plans to repay up to $10,000 in qualified student loans.
529 Plan account withdrawals used for qualified expenses of the beneficiaries that are incurred at eligible institutions such as four year colleges and universities, vocational school, community college, some foreign institutions and qualified K–12 education are federally tax free, but may have state income tax consequences. Consult with your tax professional for more information about your home state’s tax rules.
Many students and their families use student loans. But saving using a 529 plan can help students finance a debt-free education. Student loans need to be paid back, while 529 plans offer the opportunity to save as little or as much as you like.
A 529 plan can affect financial aid, but it varies by person. Federal financial aid is a needs-based award and is determined by the cost of attendance (the total amount school will cost for one year) and the expected family contribution (based upon the income and assets of both the parents and the student).
A 529 plan does not count as an asset of the beneficiary. If a 529 plan is held by the parents, it does count as an asset of the parents. If the 529 plan is owned by someone else, such as a grandparent, the 529 plan does not count as an asset of the beneficiary. However, the amount withdrawn from a 529 plan owned by someone else, such as a grandparent, is considered income of the beneficiary when it is withdrawn on the beneficiary’s behalf. This may impact any potential financial aid in following years.
Visit our tax page to find your state’s tax deduction, if it offers one.