529 plans:Layout 1 3/3/09 2:37 PM Page 1
Helping Families Save
for Higher Education
529 plans:Layout 1 3/3/09 2:37 PM Page 2
"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.
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.
529 plans:Layout 1 3/3/09 2:37 PM Page 3
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.
529 plans:Layout 1 3/3/09 2:37 PM Page 4
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.
529 plans:Layout 1 3/3/09 2:37 PM Page 5
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.
529 plans:Layout 1 3/3/09 2:37 PM Page 6
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
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.
Trust allows a purchaser
to buy a one-semester
contract over a 15 year
period for a child new-
born to 3 years old.
philanthropists to open a
START account for needy
families by providing a
double tax deduction, per
year, of up to $4,800 per
529 plans:Layout 1 3/3/09 2:37 PM Page 7
Reaching out to Low & Moderate
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.
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.
529 plans:Layout 1 3/3/09 2:37 PM Page 8
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 CollegeSavings.org or call (859) 244-8175.
College Savings Plans Network www.collegesavings.org