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                                    529 Plans
                               Helping Families Save
                              for Higher Education
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         "By saving a little with
         every paycheck, it is                        What is a 529?                              higher education savings what the cre-
                                                                                                  ation of 401(k) plans did for retirement
                                                                                                  savings. They have been wildly suc-
         exciting to think that
                                                          A 529 plan is a tax-advantaged in-      cessful in motivating families to invest
         I am helping my                                                                          and save. Today, 50 States and the Dis-
                                                      vestment plan designed to encourage
         daughter for the rest                        families to save for future higher educa-   trict of Columbia offer 529 plans, which
         of her life."                                tion expenses. The plans are named          are used by more than 11 million fami-
                                                      after Section 529 of the Internal Rev-      lies to save for higher education.
         Justine Feinstein, Computer
         Instructor, Mom, and Ohio's                  enue Code and are administered by
                                                      State Agencies and Organizations.
         CollegeAdvantage Account
         Owner                                            Thanks to the Pension Protection
                                                      Act of 2006, earnings in 529 plans are
                                                                                                  What types of 529
                                                      exempt from federal taxation when
                                                      used for higher education. States also
                                                                                                  Plans are there?
                                                      exempt earnings from state taxation
                                                      and many offer state income tax deduc-      There are two types of 529 plans: Pre-
                                                      tions or credits for contributions.         paid Tuition Plans and Savings Plans
                                                          State 529 plans have done for                Prepaid tuition plans are similar to
                                                                                                  defined benefit pension plans, where a
      The costs for tuition, room and board at an                                                 family can pre-purchase a defined
      average in-state public university are rising:                                              amount of tuition today—either in years
                                                                                                  or credits—based on today’s rates for
                                                                                                  attendance at an institution of higher
                                                                                                  education tomorrow. Today, prepaid
                                                                                                  tuition plans are offered in 13 states.
                                                                                                       Savings plans are more analogous
                                                                                                  to defined contribution plans, in which
                                                                                                  families can save in a variety of invest-
                                                                                                  ment vehicles with many options, in-
      Source: The College Board. Assumes 5% tuition                                               cluding equity-based investment
      inflation each year from 2007 to 2017.
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      options, stable value, guaranteed op-               lic policy goals established by Con-                    "Our family lives on a
      tions, and/or certificate of deposit-               gress and the state. States also pro-                   middle class income. I
      based options. Most 529 savings                     vide for low initial and subsequent
                                                                                                                  was scared that I would
      plans offer a variety of age-based in-              investment minimums and low fees.
      vestment options where the underly-                 The role of the states is even more                     wake up one day with a
      ing investments become more                         vital as new investment options and                     seventeen year-old full of
      conservative as the beneficiary gets                program enhancements are being                          promise with no way to
      closer to college age. Today, 529 sav-              developed.                                              deliver on his future.
      ings plans are offered in 50 States and                  While most plans allow investors                   Ever-rising tuition rates
      the District of Columbia.                           from out of state, there can be signifi-
                                                                                                                  made me realize that I
                                                          cant advantages such as state in-
                                                          come tax deductions or credits,                         needed to approach col-
      Why do State                                        matching grants or scholarship op-
                                                          portunities, protection from creditors
                                                                                                                  lege costs systematically.
                                                                                                                  Having MET, I look for-
      Plans Differ?                                       and exemption from state financial aid
                                                          calculations, for investors who invest
                                                                                                                  ward to the future... a lot
                                                                                                                  can change before he
                                                          in 529 plans offered by their state of
                                                                                                                  attends college. I have
          Each state that offers a 529 plan               residence.
      determines how its plan is structured
                                                                                                                  the peace of mind in
      and which investment options are of-                                                                        knowing I'll be ready."
      fered. States have generally structured                                                                     Lisa Fleury, Parent & Michigan
      investment options in 529 plans to                                                                          Education Trust (MET) Prepaid
      benefit participants from all economic                                                                      Contract Purchaser
      backgrounds within their state. States
      provide quality assurance and a vital
      level of fiscal oversight and control,
      ensuring that plans adhere to the pub-

        A wide range of benefits
        529 plans offer higher education savers an unmatched combination of benefits that include:
        • Earnings in 529 accounts grow free from federal tax, and withdrawals for qualified
          higher education expenses are likewise free from federal tax.*
        • You can open a 529 plan for anyone — your child, grandchild, spouse, friend or even yourself.
        • Assets in 529 plans can be used to pay for a variety of higher education expenses, including tuition, room
          and board, books, computer equipment, supplies and certain other fees.
        • The account owner rather than the beneficiary maintains control of account assets and determines the
          timing and amount of distributions.
        • Plan assets can be used to pay qualified higher education expenses at any eligible educational institution.
        • Account owners can change beneficiaries without tax consequences provided the new beneficiary is a
         member of the previous beneficiary’s family.
        • There are no income limits. You can contribute no matter how much you earn.

        *If you withdraw money from your 529 account for purposes other than higher education, your earnings will be subject to federal income tax and
        possibly a 10% federal tax penalty.
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      Making a Difference
          In the late 80s, several States began creating prepaid tuition and savings plans to help families cope with the
      spiraling tuition costs and to encourage families to save for higher education. Congress recognized this effort and
      sought to clarify the tax treatment of these plans so that the states could continue to help families save for higher
      education. Congress recognized that one of the States’ primary objectives in developing these plans was to
      provide incentives for low and moderate-income families to save.
          Over the years, the States developed innovative and dynamic programs to reach low and moderate income
      families. Each program is unique and is designed to meet the special challenges states face in ensuring and in-
      creasing access to higher education. As a result, 13 States offer some type of grant program as part of 529 plans,
      including matching grants and birth accounts; and 14 States offer scholarships, including merit and need based
      scholarships as part of 529 plans.

      California: The California ScholarShare Advancement
      Vehicle for Education was established to fund scholarship
      accounts for beneficiaries in categories that may include
      foster youth, at-risk youth, individuals with demonstrated
      economic need, and other categories to be determined by
      ScholarShare. The ScholarShare Project for Achievement
      and Recognition of Creativity is a pilot project in which
      scholarships were awarded to K-12 students based on a
      competition around the theme "I Will Become..." Each
      award was placed in a ScholarShare 529 account.

      Utah: Utah Educational Savings Plan (UESP) offers the Fast
      Forward Matching Program, which provides qualified Utah
      families with a 100% match of up to $400 annually on contri-
      butions to their UESP Account. UESP also offers The Transi-
      tion to Adult Living ("TAL") Scholarship, which provides
      scholarships to youth transitioning from foster care based on
      financial need, merit, and desire to complete their higher

      North Dakota: College SAVE provides families with house-
      hold adjusted gross income of up to $20,000 if single, or
      $40,000 if married filing jointly, a matching grant of up to $300
      for three years. Families with household adjusted gross income
      up to $40,000 if single or $80,000 if married filing jointly, are
      eligible to receive a one-time matching grant of up to $300.

      Colorado: CollegeInvest's Matching Grant Program pro-               Oklahoma: SEED for Oklahoma Kids ("SEED OK") is a seven-year ini-
                                                                          tiative that provides 1,360 Oklahoma families with $1,000 deposited in
      vides eligible account owners with matching funds, up to
                                                                          a state-owned Oklahoma College Savings Plan account for the benefit
      $500 per year for up to 5 years, when they open and con-
                                                                          of their child. Families who open and con-
      tribute to a CollegeInvest 529 account. The CollegeInvest Op-
                                                                          tribute to their own account may receive
      portunity Scholarship awards 38 scholarships of $1,000 each
                                                                          a savings match of up to $250 each year
      to Colorado students who have an expected family contribu-
                                                                          over a four-year period. SEED OK is de-
      tion below a certain level. The CollegeInvest Service Scholar-
                                                                          signed to test the policy concept of
      ship awards 27 scholarships of $6,000 each, over a two-year
                                                                          universal children's savings accounts by
      period, to Colorado students who have an expected family
                                                                          assessing the impact of giving every child
      contribution below a certain level and commit to community
                                                                          an account at birth.
      service work.
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        Project Stars Student
        Current Status: College Graduate

        Natalie Forcier has taken the mentoring aspect of Project STARS to a whole new
        level. She created the Youth Violence Prevention Initiative or “The Projekt”, whose
        mission is to reduce violence among Sudanese at risk youths living within urban
        Cairo. Natalie recently wrote a letter to her Project STARS mentor expressing her
        gratitude. “Your helping me has in turn taught me how to identify with and create a program that helps a
        completely different group of people.” The combination of a STARS scholarship, one-on-one mentoring and
        the support of the Foundation for Lee County Public Schools and the Florida Prepaid College Foundation is
        now impacting the lives of Sudanese at-risk youths in Cairo, Egypt. A job well done Natalie!

                                                                                   Maine: The Harold Alfond College Challenge Grant provides a
                                                                                   one-time $500 grant to every Maine baby if an account is
                                                                                   opened before the child’s first birthday. Maine residents with a
                                                                                   AGI of less than $75,000 are eligible for a one-time $200 grant
                                                                                   and a 50% matching grant (up to $200) on additional contribu-
                                                                                   tions. Maine's LiLA Program provides employer matches and
                                                                                   NextGen Fee Rebate Program rebates fees paid by certain ac-
                                                                                   counts. The NextGen Student Grant Program provides scholar-
                                                                                   ships to Maine students who meet certain criteria and the
                                                                                   NextGen Access Scholarship Program provides scholarships to
                                                                                   Maine's non-traditional student-beneficiaries.

                                                                            Pennsylvania: The Family Savings Account Program ("FSA"),
                                                                            which is administered by the Pennsylvania Department of Commu-
                                                                            nity and Economic Development, offers families with income of up
                                                                            to 200% of the federal poverty level a 100% match for their sav-
                                                                            ings, up to $2,000. The savings must be earmarked for one of a
                                                                            specified list of goals, including placing the savings and match in a
                                                                            Pennsylvania Guaranteed Savings Plan account.

                                                            Illinois: Bright Start offers University Scholarships, which provides $400,000 each
                                                            year to Illinois' universities who then award scholarships to Illinois' students on
                                                            need-based criteria. The State Treasurer's Office and the James R. Jordan Founda-
                                                            tion have partnered to establish the State
                                                            Treasurer's Office A-TEAM Scholars Pro-
                                                            gram that provides 4th - 12th grade stu-
                                                            dents at specified need-based schools
                                                            with scholarships if the student meets the
                                                            criteria for good citizenship, attendance
                                                            and earning A's and B's. Scholarship
                                                            credits are invested in Bright Directions.

      Florida: The Florida Prepaid College Foundation, which is a direct support
      501(c)(3) organization of the Florida Prepaid College Board, is a public/pri-
      vate partnership that provides prepaid college scholarships to economically
      disadvantaged students who are at risk of dropping out of school and to
      other deserving students in need of assistance. The Stanley Tate Project
      STARS (Scholarship Tuition for At Risk Students) scholarship program is the                States with Grant Programs
      Foundation's largest program and targets low-income students who are at-                   States with Scholarship Programs
      risk of dropping out of school, and gives them the incentive and opportunity
      to plan and prepare for college. Since its inception, the foundation has given             States with both a Grant & Scholarship Program
      out over $18 million in scholarships.
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                                         Structuring 529 Plans to                     • State Income tax deduction or credit
                                                                                      for contributions and state tax
                                                                                      exemptions on earnings.
                                         meet the needs of Low                        • Low minimum initial investments;
                                         and Moderate income                          with some states offering minimums
                                                                                      as low as $15.

                                         Families                                     • Low automatic contribution
                                              Low and moderate-income families
                                         are not a typical target market for finan-   • Low fees, including access to low-
                                         cial services firms, financial planners      fee options that are sold directly from
                                         and investment advisors. These families      the program.
                                         usually do not have much discretionary
                                         income to invest or save and cannot          • Age-based investment options that
                                         meet minimum contribution require-           automatically re-balance assets de-
                                         ments of most investments. State-ad-         pending on the age of the beneficiary.
        Alabama’s Higher Edu-
        cation 529 Fund charges          ministered 529 plans are specifically
                                         designed to help these families. The         • FDIC insured products, including
        no fees on 529 direct
                                         states' role in selecting financial firms    CDs and savings accounts.
        sold accounts opened
        with $250 or $25/mo au-          or investment managers through com-
                                         petitive procurement assures partici-        • Convenient contribution options
        tomatic payment.
                                         pants that they receive better pricing       such as payroll deduction, electronic
        Ohio’s CollegeAdvantage          and account servicing than they could        fund transfers, and online
        offers two bank invest-          obtain independently.                        contributions.
        ment options. The bank                In structuring programs that meet
        options, Fifth Third 529         the needs of low and moderate income-        • Easy enrollment procedures,
        Certificates of Deposit          families, States have included the fol-      including on-line enrollment.
        (CDs) and Fifth Third 529        lowing program features:
        Savings Accounts, pro-
        vide families with the se-
        curity of a guaranteed
        rate of return.

        Michigan Education
        Trust allows a purchaser
        to buy a one-semester
        contract over a 15 year
        period for a child new-
        born to 3 years old.

        Louisiana encourages
        philanthropists to open a
        START account for needy
        families by providing a
        double tax deduction, per
        year, of up to $4,800 per
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      Reaching out to Low & Moderate
      Income Families
           The States recognize the importance of educating
      all families about saving for higher education. In doing   Kentucky’s Higher Education Assistance Authority
      so, the States have developed creative and innovative      (KHEAA) has an Outreach team which travels around
      ways to reach families — particularly low and moder-       the state in a fully branded and functional camper to
      ate income families. While each state has used tradi-      provide information on funding options for higher ed-
      tional avenues for its outreach, such as television and    ucation. The team travels to all areas including rural
      radio, all of the States have discovered how critical it   and lower income areas.
      is to meet with families face-to- face in order to get
      the message out. CSPN promotes September as Col-           Maryland's College Savings Plan partners with the
      lege Savings Month and many states use September           Baltimore City and Maryland's CASH Campaign (Cre-
      as an opportunity to heighten awareness. A number          ating Assets, Savings, and Hope), which is a non-
      of states have also designated May 29th ("5/29") as        profit that works with low-moderate income families
      College Savings Day.                                       to help them maximize financial stability. Maryland
                                                                 provides information to CASH's clients and trains
      The following is a sampling of the different ways in       CASH's tax preparers about 529 savings plans.
      which 529 plans have reached out to families:
                                                                 Georgia's Path2College Plan employs a dedicated
      • Hiring dedicated staff whose primary job responsi-       staff member to develop and implement marketing
      bility is to educate families about 529 programs.          initiatives directed toward low and moderate-income
                                                                 families, including providing information about 529
      • Providing materials in multiple languages.               plans at various community events.

      • Hosting community outreach forums, seminars              Iowa's College Savings Plan will provide college and
      and conferences; hosting culturally relevant work-         career planning seminars to 7th - 12th grade students
      shops and financial education workshops.                   at participating schools as part of the Iowa College
                                                                 Aid Commission's "GEAR UP" Grant (Gaining Early
      • Partnering with other state agencies for                 Awareness and Readiness for Undergraduate Pro-
      distribution of materials.                                 grams). College Savings Iowa will provide materials
                                                                 to participating families and give away $10,000 in Col-
      • Partnering with employers, including offering            lege Savings Iowa accounts. GEAR UP is a federal
      seminars and payroll deductions.                           program designed to increase the number of low-in-
                                                                 come students who are prepared to enter and succeed
      • Meeting with customers directly at state offices,        in postsecondary education.
      encouraging “walk-ins”.
                                                                 Nevada's UPromise College Fund served as the pilot
      • Hosting outreach presentations to elementary,            domain for the launch of Ugift - Give College Savings
      middle, and high school parents, counselors, PTA’s         in their Upromise College fund, which is an innovative
      and administrators.                                        way to invite family and friends to put money in a 529
                                                                 plan. Account owners can tap into their social network
      • Participating in state fairs and sporting events.        to help ease the burden of saving. With an average
                                                                 gifting amount of $625, Ugift has proven to be an
      • Participating in gift rewards and gift giving            effective way to help beneficiaries grow their higher
      programs, such as UPromise and FutureTrust.                education savings accounts.
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         October 29,2008

         Dear Mr. Alex Giannoulias,

             I would like to extend my gratitude for the support I received with the Bright Start
         Scholarship. As one of this year's recipients, I am truly grateful for the opportunities this
         award will provide me. I rely on financial aid, grants, and student loans to help finance my
         education especially with two other siblings in college.
             I currently work for the Center for Science and Math Education here at Loyola. Work-
         ing in the education sector has opened my eyes to the wonderful and unique experience I
         am receiving at Loyola University Chicago. My years at Loyola University Chicago have
         been wonderful. I am currently pursuing a bachelors of science degree in two concentra-
         tions: mathematics and biology.
             The faculties in both departments have been such an inspiration. It is their dedication
         and passion towards their studies that I hope to emulate in my professional career.
         Additionally, I hope to become a contributing Loyola alumna in order to offer a
         future student the same assistant as you offered me.
             Once again, thank you for supporting the
         students of Loyola University
         Your generosity truly makes a

         Rozana H. Asfour

                                           Founded in 1991, the College Savings Plans Network (CSPN) is an affiliate of the National
                                           Association of State Treasurers (NAST). CSPN is a non-profit association representing states
                                           who administer Section 529 college savings and prepaid plans. One of the Network's primary
                                           purposes is to educate families about the importance of saving for higher education and the
                                           benefits of Section 529 plans. Additionally, CSPN monitors federal activities and promotes
                                           legislative and regulatory changes to enhance Section 529 plans. To learn more about CSPN
                                           and 529 plans across the country, visit or call (859) 244-8175.

          College Savings Plans Network                                       

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