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 $500,000 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
- Room and board
- Books, supplies and equipment (including computers) required for enrollment in or attendance at an eligible higher education 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.
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 and 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 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.
- Enroll in Future Scholar today
- 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 $500,000 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. Within one year of opening the account, you may contribute for the first five years all at once, up to $75,000 (or $150,000 for couples), as long as you don't contribute any more for the five years following the account opening.
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 $500,000.
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 $500,000.
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 IRC 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.
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.
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 or gets a scholarship?
If your child decides not to go to college, you can transfer the account to a new beneficiary as long as he or she is a relative of the original beneficiary.
If your student receives a scholarship, you can withdraw up to the amount of the scholarship without receiving a 10% federal penalty.
Earnings on this withdrawal would be subject to federal and possibly state income tax. Remaining funds can be used for educational expenses not covered by the scholarship, or a new beneficiary can be named.
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 $500,000 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:
- 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
- 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
- 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 election?
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?
You can send a gift contribution at any time by mailing a contribution form along with a check made payable to Future Scholar. Account owners may also 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.
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?
Yes. The same tax benefit is available to any contributor.
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 $15,000 per year ($30,000 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 $75,000 ($150,000 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?
No minimum investment required, unless it's an e-gift, which requires a $25.00 contribution.