Frequently Asked Questions

What is a 529 Plan?

Created under section 529 of the Internal Revenue Code (IRC) and sponsored by individual states, 529 plans are tax-advantaged education savings vehicles held by an account owner for a designated beneficiary. Beginning in 2002, changes to the Internal Revenue Code have rendered these plans more attractive than many other savings vehicles in tax treatment of withdrawals used for qualified education expenses.

View comparison of the 529 plan to other investment vehicles.

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Who is eligible to open a Future Scholar 529 plan account?

Any U.S. citizen or resident alien of legal age can open an account.

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Who can be the beneficiary of my 529 plan account?

There are no age or family relationship limits on 529 plan beneficiaries. Any legal U.S. resident can be a beneficiary of a Future Scholar 529 College Savings Plan account. You can even open an account with yourself as the beneficiary, to help with your own higher educational expenses.

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Can a beneficiary have more than one 529 Plan account?

Yes. Provided that the combined 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.

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Can I change my plan account's beneficiary?

Yes, you can change the beneficiary on your account, with certain limitations. A change in beneficiaries is permitted and can be done without federal income tax or penalty provided that the new beneficiary is a qualified member of the current beneficiary's extended family.

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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.

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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.

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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.

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Can my plan beneficiary attend college anywhere in the U.S.?

Yes. Withdrawals can be used at any eligible institution in this country or abroad. 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.

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How does investing in a 529 plan affect the beneficiary's chances of qualifying for financial aid?

Guidance from the U.S. 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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Who is included in the Internal Revenue Code's definition of a "qualified family member"?

For purposes of changing beneficiaries on a 529 plan account, the IRC defines a qualified family member as one of the following (in relation to 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

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Can I change my investment election?

Yes. Current tax law allows plan participants to reallocate their investment selections for previously made contributions twice in 2009. Account owners can change the allocation of future contributions at any time.

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Can I transfer my UGMA/UTMA account into a 529 plan?

Yes, provided that certain requirements are met. First, assets in an UGMA/UTMA account must be liquidated, since 529 plan accounts accept only cash contributions. You should check with your tax advisor regarding such a liquidation. Also, a Future Scholar 529 College Savings Plan account receiving assets from an UGMA/UTMA liquidation will have restrictions not present on an account that is registered otherwise. All withdrawals from the 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, and the beneficiary will assume control of the assets upon reaching the age of majority.

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Can I roll my existing Coverdell Education Savings Account (Education IRA) into a 529 plan account?

Yes, subject to restrictions. Because 529 plan accounts accept only cash contributions, assets in a Coverdell account must be liquidated to accomplish the transfer. Because taking a distribution from your Coverdell account to invest in a 529 plan is considered a qualified withdrawal, it is not a taxable event for federal tax purposes.

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Can I choose my own investments?

529 Plans offer a variety of investment choices, from single funds to age-based portfolios. Please remember there's always the potential of losing money when you invest in securities.

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What if I need to use the money in my 529 plan for expenses other than those related to higher education?

Assets held in a 529 Plan can be withdrawn at the discretion of the account owner. However, earnings on withdrawals to cover expenses other than qualified education expenses will be subject to taxes as ordinary income and, in most cases, a 10% federal penalty.

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How do I invest?

To invest in Future Scholar, you need to enroll by opening an account, and then contribute to the account.

• Enroll to open an account
• Contribute to the account.

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What expenses are considered "qualified" under the plan?

As defined by the IRC, qualified higher education expenses include tuition, fees, room, board, books, supplies and equipment required for enrollment in or attendance at an eligible educational institution. 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.

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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 $65,000 (or ($130,000 for couples), as long as you don’t contribute any more for the five years following the account opening.¹ This is great for those with lump sums, such as inheritances, and it also allows more money in the account sooner, giving it more time for potential growth.

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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 Columbia Management for a Program Description, which contains this and other important information. Read it carefully before investing.

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