What is a 529 plan?
A 529 plan is an investment account that can help you save over time for the high cost of education. 529 plans, created under section 529 of the Internal Revenue Code, are sponsored by individual states. These college savings investment vehicles provide tax advantages when funds are used for qualified college expenses.
Who can open a 529 plan account?
Any U.S. citizen or resident alien of legal age can open an account. There are no age, income or family relationship limits. Family and friends can even establish Future Scholar accounts for the same child, as long as the total of all accounts does not exceed the overall contribution limit of $540,000 per beneficiary.
Who can use the money I save in my 529 plan account?
Any legal U.S. resident can be a beneficiary. An account can be set up for a child, teenager, or even an adult. You can even open an account with yourself as the beneficiary, to help with your own higher educational expenses. As an account owner, you determine who will use the money.
What can the money be used for? What expenses are qualified?
The money you save in a 529 plan can be used for the payment of certain qualified education expenses including:
• Tuition and fees at an eligible higher education institution;
• Cost of room and board incurred while enrolled at or attending, at least part-time, an eligible higher education institution;
• Books, supplies and equipment (including computers) required for enrollment in or attendance at an eligible higher education institution;
• Expenses for special needs services necessary for a beneficiary to enroll in or attend an eligible post-secondary school as long as the expenses are incurred in connection with enrollment or attendance at the institution;
• Effective January 1, 2018, families may withdraw up to an aggregate of $10,000 a year per beneficiary tax free to cover K-12 tuition at public, private or religious elementary or secondary schools. Account Owners are responsible for monitoring, and complying with, the $10,000 aggregate limit for such expenses;
• Effective January 1, 2019, expenses for fees, books, supplies, and equipment required for a designated beneficiary’s participation in an apprenticeship program registered and certified with the Secretary of Labor under Section 1 of the National Apprenticeship Act; and
• Effective January 1, 2019, amounts paid as principal or interest on any qualified education loan of a 529 plan designated beneficiary or a sibling of the designated beneficiary. Payments to any qualified education loans are subject to a lifetime limit of $10,000. A sibling includes a brother, sister, stepbrother, or stepsister.
Where can the money be used? Which colleges are eligible?
The money you save can be used at any eligible educational institution in the United States, including out-of-state, as well as some international schools:
• Two- and four-year public and private colleges
• Graduate and professional programs
• Certain vocational-technical schools
You can search eligible educational institutions at the Federal Student Aid (FAFSA) website.
How does a 529 plan affect financial aid?
A 529 plan is treated as the parent's (or account owner's) asset, not the child’s, in determining eligibility for federal financial aid.
Only 5.64% or less of the account's value (based on current financial aid formula) is factored in when determining your expected family contribution each academic year.
How do I open a Future Scholar 529 plan account?
Opening a Future Scholar account to save for a loved one’s education is simple:
• There is no minimum amount you need to invest to open a Future Scholar account, making it easier than ever to start saving.
• You can transfer funds directly from your bank account into your Future Scholar account with the Automatic Contribution Plan.
• Stay on track by checking your account status online
Who can contribute to a 529 plan account?
Any U.S. citizen can contribute to a 529 plan account. You can even invite friends and family to help you save.
How much can I contribute to a 529 plan account?
Contributions to a single beneficiary, across all 529 accounts, cannot exceed $540,000 in South Carolina.
You may contribute to more than one person's 529 account. Contribution limits apply to the beneficiary, not the account owner or contributor.
What is “frontloading” and how can it benefit my savings?
“Frontloading” is an exception to the Gift Tax limitation that is unique to 529 plans. Individuals may contribute up to five-times the annual gifting exclusion (currently set at $16,000) in a single year, for a maximum $80,000 (or $160,000 for joint filers) without incurring gift tax, as long as the individual does not make any subsequent contributions within the following five years. This type of contribution may require the completion of additional tax filing by the contributor – specifically completion of IRS form 709.
This option is useful to investors who wish to contribute a lump sum, such as an inheritance to a 529 plan. It allows more money to be invested into the account sooner, giving it more time for potential growth.
How do I add funds to the account?
Once you've enrolled in Future Scholar, it's easy to make a contribution. Anyone, including parents, grandparents, other family and friends, can contribute until the balance reaches $540,000.
Contributions can be made by check, through a one-time bank draft or by setting up a recurring payment from your bank account.
Can I transfer an UGMA/UTMA account into a 529 plan?
Yes, as long as certain requirements are met. 529 plan accounts accept only cash contributions, so the assets in an UGMA/UTMA account must be liquidated. Check with your tax advisor about liquidation.
Restrictions apply to Future Scholar 529 Plan accounts that receive assets from an UGMA/UTMA liquidation. These restrictions do not apply to accounts without UGMA/UTMA contributions:
- All withdrawals from the 529 account must be made for the benefit of the beneficiary. If the withdrawal is not used for educational expenses for the designated beneficiary, federal and possibly state taxes and a 10% federal penalty will apply to the nonqualified withdrawal.
- The transfer of assets held in a 529 plan is irrevocable under an UGMA/UTMA registration.
- The beneficiary will assume control of the assets upon reaching age 18.
Can I roll my existing Coverdell Education Savings Account (Education IRA) into a 529 Plan?
Yes, subject to restrictions. 529 plan accounts accept only cash contributions, so assets in a Coverdell account must be liquidated first to make the transfer.
Because taking a distribution from your Coverdell account in order to invest in a 529 plan is a qualified withdrawal, it is not subject to federal income tax.
Choosing or changing beneficiaries
Can one person be named the beneficiary for more than one 529 plan account?
Yes. As long as the total of all accounts for the same beneficiary in a given state does not exceed that state's maximum contribution limit, a beneficiary can have more than one account under different account owners and under different state plans.
For South Carolina, the maximum contribution limit for all accounts per beneficiary is $540,000.
Can I change my account’s beneficiary?
Yes, you can change the beneficiary on your account, with certain limitations. If the new beneficiary is an eligible relative of the current beneficiary, the change can be made without federal income tax or penalty.
Who can I change my account beneficiary to?
For purposes of changing beneficiaries on a 529 plan account, the IRS defines a qualified family member as one of the following relatives of the current beneficiary:
• Son or daughter, or descendant of son or daughter
• Stepson or stepdaughter
• Brother, sister, stepbrother, stepsister
• Mother or father, or parent of mother or father
• Stepmother or stepfather
• Son or daughter of brother or sister
• Brother or sister of mother or father
• Spouse of any individual listed above
• First cousin of beneficiary
• Brother-in-law, sister-in-law, son-in-law, daughter-in-law, father-in-law, mother-in-law
Can I open more than one account for different beneficiaries?
Yes. You can open an account for any eligible beneficiary. There are no contribution limits for account owners.
Are there any tax implications for withdrawals from a 529 account?
If the withdrawal is used for the payment of qualified education expenses, there are no tax implications. However, the account owner or the beneficiary will receive a 1099-Q.
Earnings on withdrawals for expenses other than qualified education expenses will be subject to ordinary income tax and, in most cases, a 10% federal penalty. Consult a tax professional for more information about non-qualified withdrawals and any applicable penalty waivers.
Why did I receive a 1099-Q?
Future Scholar is required to report all withdrawals from your account to the IRS using the Form 1099-Q.
If you used all the funds distributed from your account for qualified education expenses, your distribution is not taxable and most likely, you do not need to report anything on your federal or SC state income tax return.
If you used any portion of the withdrawal for non-qualified expenses, you will be subject to ordinary income taxes on the earnings portion of the withdrawal(s), and, in most cases, a 10% federal penalty. Consult a tax professional for more information about non-qualified withdrawals and any applicable penalty waivers.
Please note: the 1099-Q will be addressed to the individual receiving the distribution. If the withdrawal was made payable to the account owner, the account owner will receive the 1099-Q form. If the withdrawal was made payable to the beneficiary, or paid directly to the school, the beneficiary will receive the 1099-Q form.
What if I need to use the money in my 529 plan for something other than a qualified expense?
The money you save can be withdrawn at your discretion. However, earnings on withdrawals to cover expenses other than qualified education expenses will be subject to ordinary income tax and, in most cases, a 10% federal penalty.
What happens if my student doesn’t go to college?
You have several options:
• Keep the account for other qualified educational expenses for the child. While a four-year college may not be in the plan, expenses related to enrollment at a technical college and some trade schools may be qualified expenses.
• Transfer the account to a new beneficiary (as long as he or she is a qualifying relative of the current beneficiary).
• If the beneficiary has a disability, transfer the funds into a Palmetto ABLE® account.
• Withdraw the funds at your discretion. Keep in mind, you will be responsible for paying federal and (possibly) state income taxes on the earnings portion of the withdrawal. You may also be subject to a 10% federal penalty if a penalty waiver does not apply.
What happens if my student gets a scholarship?
Congratulations! If your student receives a scholarship, you can withdraw up to the amount of the scholarship without penalty. You will only be responsible for paying federal and (possibly) state income tax on the earnings portion of the withdrawal.
What if I want to use the funds in my 529 account for K-12 tuition expenses?
Effective January 1, 2018, families may withdraw up to an aggregate of $10,000 a year per beneficiary tax free to cover K-12 tuition at public, private or religious elementary or secondary schools. For such expenses, account owners are responsible for monitoring, and complying with, the $10,000 aggregate limit.
There is not a distinction between K-12 withdrawals and withdrawals to a college or university. Withdrawals are simply qualified or non-qualified. K-12 withdrawals are made in the same manner as any other withdrawal from a 529 account: Online access through our web portal, via form or through our call center. For qualified expenses information, see the ‘Learn’ section of Common Questions.
What happens if my student receives a refund of qualified expenses previously withdrawn from a 529 account?
If a 529 plan beneficiary receives a refund from an eligible educational institution for tuition or other qualified expenses, the refunded amount will not be treated as a non-qualified distribution as long as it is recontributed to a 529 plan within 60 days. The recontributed refunds must be contributed to a 529 plan for the same beneficiary, but they do not have to be made to the same 529 plan from which they were distributed. Funds may be recontributed to the account electronically or by paper check. The recontribution will appear as any other contribution made to your account, therefore, we recommend you maintain a record of the recontribution for your files. Also, note that the total amount of distributions for the year will still appear on your 1099-Q.
If the refund is not recontributed within 60 days, the withdrawal may be deemed non-qualified and you will be responsible for paying federal and (possibly) state income taxes on the earnings portion of the withdrawal. You may also be subject to a 10% federal penalty.
What are the tax benefits of the Future Scholar 529 Plan?
Money in your account grows free from federal and South Carolina state income taxes. Withdrawals are also tax-free as long as that money is used for qualified expenses.
If you file a South Carolina tax return, either as a resident or a non-resident, you may be eligible for additional tax advantages.
Future Scholar account contributions may be tax-deductible, up to the maximum account balance limit of $540,000 per beneficiary (or any lower limit under applicable law). When you withdraw money to pay for qualified expenses, you pay no South Carolina state income tax on your withdrawals.
How do I invest?
Can I choose my own investments with Future Scholar?
Yes. With Future Scholar you have the flexibility to choose an investment strategy that makes sense for your individual needs. Each portfolio provides the benefit of professional investment management from Columbia Management.
You can choose from three different investment options:
1. Age-based option
• Choose from one of three age-based risk tracks – Conservative, Moderate or Aggressive
• As college approaches, the track will automatically shift over time from more aggressive to more conservative investments
2. Target allocation option
• Choose from seven portfolios ranging from aggressive to more conservative
• Unlike the age-based tracks that shift over time, a target allocation portfolio will remain constant unless you decide to change it
3. Single-fund option
• Select from a variety of individual portfolios that invest in a single underlying fund, allowing you to customize your own portfolio mix
Can I change my investment selection?
Yes. You can reallocate current investment selections twice per calendar year, according to tax law. You can change the allocation of future contributions at any time.
Is my investment guaranteed?
No, your investment is not guaranteed. Please consider the investment objectives, risks, charges and expenses carefully before investing in the Future Scholar 529 College Savings Plan. Contact your financial advisor or visit futurescholar.com for a Program Description, which contains this and other important information. Read it carefully before investing.
Giving a 529 Gift
How do I send a gift contribution?
There are several ways to give a gift:
1. If you know the account number, you can send a contribution form along with a check made payable to Future Scholar.
2. Account owners may send you an electronic invitation (eGift invitation) to contribute to an account. eGift invitations will include a link that will allow you to make a contribution directly from your bank account.
How will the account owner know a contribution was made?
If the contribution was made in response to an eGift invitation, the account owner will receive an email notification that includes the name of the contributor. If the contribution is made by check, the account holder will receive a confirmation statement, but the name of the contributor will not be disclosed.
Contributors may also choose to order one of our occasional cards to notify the account owner that a check contribution is being made to the account.
How can I notify the beneficiary of my gift?
Contributors may choose to order one of our occasional cards to notify the beneficiary of the gift.
Are gift givers eligible to receive a South Carolina tax deduction?
A person who contributes to an account by check, or in response to an eGift invitation, is eligible to receive a deduction on their South Carolina income tax return.
Are there federal tax benefits associated with making a contribution?
Some of the federal tax benefits associated with contributions 529 college savings plans are as follows:
- Federal income tax
Pay no federal income taxes when you withdraw funds to pay for qualified higher education expenses. When you use the money in your Future Scholar account to pay for qualified higher education expenses, you won’t pay South Carolina state or federal taxes on your withdrawals.
- Federal estate and gift tax
Parents, grandparents and other relatives can contribute up to $16,000 per year ($32,000 for married couples), per beneficiary without triggering federal gift taxes.
Contributions are considered completed gifts and are excluded from your taxable estate.
Special forward-gifting provisions allow contributions of up to $80,000 ($160,000 for married couples) per beneficiary in a single five-year period, gift tax free. Additional gifts during the five-year period will generally reduce the donor’s unified credit (lifetime exclusion amount), unless the annual exclusion amount increases. You must file Form 709 (U.S. Gift (and Generation-Skipping Transfer) Tax Return) to make this election.
For additional information regarding certain tax treatment of contributions, please refer to the Plan Disclosure Booklet and consult your tax advisor for additional details.
You can search eligible educational institutions at the Federal Student Aid (FAFSA) website.
Is there a minimum contribution required?
E-gift contributions are subject to a $25.00 minimum. There is no minimum for contributions made by check.