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Common Questions About 529 Plans

Get answers to your questions about saving for college, how to withdraw the money you save, tax benefits and investing options with Future Scholar.

Learn

About 529 accounts, how to save, who is eligible and where you can use the money

What is a 529 plan?

A 529 plan is an investment account that can help you save for the high cost of education over time. 529 plans are sponsored by individual states and are called "529 plans" because they were created under section 529 of the Internal Revenue Code. These college savings vehicles provide tax advantages when the savings 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 restrictions on beneficiaries — an account can be set up for a child, teenager, or even an adult. 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 $400,000 per beneficiary.3

+ Who can use the money I save in my 529 plan account?

Any legal U.S. resident can be a beneficiary. There are no age, income or family relationship limits. 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 qualified higher education expenses, which include:

  • Tuition and fees
  • Room and board
  • Books, supplies and equipment required for enrollment in or attendance at an eligible higher education institution
+ 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 and some international schools:

  • Two- and four-year public and private colleges
  • Graduate and professional programs
  • Certain vocational-technical schools

You can search for 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 easy:

  • There is no minimum amount you need to invest to open a Future Scholar account, making it easier than ever to start saving.
  • Transfer funds directly from your bank account on file into your Future Scholar account with the Automatic Contribution Plan.
  • Enroll in Future Scholar today

Ongoing account access:

Plan

Making contributions, taking withdrawals and handling unforeseen changes

Making contributions

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 $400,000 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 $70,000 (or $140,000 for couples), as long as you don't contribute any more for the five years following the account opening.

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.

Transferring assets

+ 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.

There are restrictions on Future Scholar 529 Plan accounts that receive assets from an UGMA/UTMA liquidation which are not present on 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 account?

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 to invest in a 529 plan is considered a qualified withdrawal, it is not subject to federal income tax.

Choosing or changing beneficiaries

+ Can one person be a beneficiary for more than one 529 plan account?

Yes. As long as 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 $400,000.

+ Can I change my account's beneficiary?

Yes, you can change the beneficiary pdf 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.

Withdrawing funds

+ How does a 529 plan affect financial aid?

A 529 plan is treated as the parent's (or account owner's) asset in determining eligibility for federal financial aid.

  • Assets held by the parents have less impact on need-based financial aid eligibility than those held by the child, so a 529 plan may have less impact on eligibility as compared to assets held in the child's name, such as a custodial account.
  • 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.

Learn more about the financial aid formula.

Calculate your estimated expected family contribution amount. 

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

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 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 a 10% federal penalty.

  • The 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

Save

Tax benefits and investment options to help you grow your money

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 higher education expenses.1

If you file a South Carolina tax return, either as a resident or non-resident, you may be eligible for additional tax advantages2

  • Future Scholar account contributions may be tax-deductible, up to the maximum account balance limit of $400,000 per beneficiary (or any lower limit under applicable law)
  • When you withdraw money to pay for qualified higher education expenses, you pay no South Carolina state income tax on your withdrawals

Calculate your potential state tax deduction 

+ How do I invest?

To invest in Future Scholar, you need to enroll by opening an account and then making your initial contribution.

Enroll to open an account

Contribute to the account

+ 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
  4. Learn more about the Future Scholar investment options.

+ 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 pdf, which contains this and other important information. Read it carefully before investing.

1 Please see the Program Description for more information on qualified educational expenses.

2 Tax treatment varies by state. For residents of states other than South Carolina, favorable state tax treatment for investing in a Section 529 college savings plan may be limited to investments in a Section 529 college savings plan offered by your home state. You should consult with your tax advisor about any state or local taxes before making any tax-related decisions. This tax information is general in nature and does not constitute tax advice on the part of Columbia Management Investment Distributors, Inc., its affiliates or the South Carolina Office of State Treasurer.

3 Lower limits may be set by South Carolina state law.

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 pdf, which contains this and other important information. Read it carefully before investing. You should also consider, before investing, whether the investor's or 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. Columbia Management Investment Distributors, Inc., distributor and underwriter.

The Direct Plan is sold directly by the Program and is limited to a specific group of investors, as described in the Program Description pdf. You may also participate in the Advisor Plan, which is sold exclusively through financial advisors. The Advisor Plan offers additional investment choices, but the fees and expenses are higher. Please contact your financial advisor for additional information on the Advisor Plan.

The Office of State Treasurer of South Carolina (the State Treasurer) administers the Program and has selected Columbia Management Investment Advisers, LLC and Columbia Management Investment Distributors, Inc. (Columbia Management) as Program Manager. Columbia Management and its affiliates are responsible for providing certain administrative, recordkeeping and investment services, and for the marketing of the Program. Columbia Management is not affiliated with the State Treasurer.

This information does not constitute tax or legal advice. Neither the State Treasurer, Columbia Management Investment Advisers, LLC, nor its affiliates, provide tax or legal advice. Please consult your tax adviser before making tax-related decisions.

Withdrawal of earnings not used for qualified higher education expenses will be subject to federal and possibly state and local income tax and may be subject to an additional 10% federal penalty tax.

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Open an account with no minimum amount.

Keep saving with optional automatic transfers.

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