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Thebenefitsincludeavarietyofinvestmentoptionsandpotentialtaxadvantages.
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98% whovotedfoundthishelpful

Whetheryou'vegottoddlers,teenagers,oreven
grandchildren,onethingiscertain:Payingforcollege
seemstogetmoreexpensiveeveryyear.Giventhat
theaverageannualcost(tuition,fees,androomand
board)forafouryear,instatepubliccollegeis
$18,943forthe20142015tuitionyear,and$42,419
peryearforafouryearprivatecollege,1itsno
surprisethatcollegeexpensescanbeoverwhelming.
Footingcollegebillsthesedaysoftentakesevery
sourceofpotentialfundingavailabletoaparent,and
theremaybenobetterplacetostartthanbyopening
andcontributingtoa529collegesavingsplan
account.Why?Therestrictionsarefew,andthepotentialbenefitscanbesignificantfortheaccount
holder,includingcertaintaxadvantages,potentialminimalimpactonthefinancialaidavailabletothe
student,andcontroloverhowandwhenthemoneyisspent.
Understandingtheinsandoutsofa529collegesavingsplanmayhelpyouunlockoneofthebiggest
bangsforyourcollegesavingsbuck.

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Whilethereareseveralwaystosaveforcollegesuch
asopeningacustodialaccount(UniformGiftsto
MinorsAct[UGMA]/UniformTransferstoMinorsAct
[UTMA]account),aCoverdellEducationSavings
Account(ESA),orevensettingmoneyasideina
taxableaccount(seethedetailedchartbelow)the
potentialadvantagesofa529collegesavingsplan
distinguishitfromtherest.
Designedspecificallytohelppayforqualifiedcosts
associatedwithhighereducation,a529college
savingsplanisataxadvantagedaccountthatallowsfordistributionstopayforthingsliketuition,fees,
books,supplies,andanyapprovedequipmentthestudentmayneedtostudyataccreditedinstitutions.
Inaddition,youcantakedistributionsforroomandboard,aslongasthebeneficiaryoftheplanis
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attendingtheschoolatleastparttime.When529fundsareusedforthesequalifiedpurposes,thereis
nofederalincometaxoninvestmentgains(nocapitalgainstax,ordinaryincometax,orMedicare
surtax).
Typically,aparentorgrandparentopenstheaccountandnamesachildorotherlovedoneasthe
beneficiary.Eachplanissponsoredbyanindividualstate,ofteninconjunctionwithafinancialservices
companythatmanagestheplan,althoughyoudonthavetobearesidentofaparticularstatetoinvest
initsplan.
Herearefivemajoradvantagesof529planstoconsider:

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Manyfamiliesworrythatsavingforcollegewillhurttheirchancesofreceivingfinancialaid.But,
because529collegesavingsplanassetsareconsideredparentalassets,theyarefactoredintofederal
financialaidformulasatamaximumrateofabout5.6%.Thismeansthatonlyupto5.6%ofthe529
assetsareincludedintheexpectedfamilycontribution(EFC)thatiscalculatedduringthefederal
financialaidprocess.Thatsfarlowerthanthepotential20%ratethatisassessedonstudentassets,
suchasassetsinanUGMA/UTMA(custodial)account.LearnmoreabouthowtheEFCiscalculated.
Thislowerratemeansthateverydollarsavedina529collegesavingsplancangoalongwaytoward
helpingtopayforcollegewithoutsignificantlyaffectingfinancialaidforthestudent,saysKeith
Bernhardt,vicepresidentofcollegeplanningatFidelityInvestments.

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Oneimportantcaveatisthedifferenceintreatmentifsomeoneotherthantheparentsorstudent
suchasagrandparentownsthe529plan.Inthatcase,whilethese529savingsarenotreportedasa
studentassetontheFreeApplicationforFederalStudentAid(FAFSA),anydistributionfromthis529
planisreportedasincometothebeneficiary,potentiallyresultinginasignificantreductionin
eligibilityforneedbasedaidthefollowingyear.Iftheyreavailable,considerusingfundsina529plan
ownedbyanonparentforthelastyearofcollege,afterthelastfinancialaidformsarefiled.

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Unlikeacustodialaccountthateventuallytransfersownershiptothechild,witha529collegesavings
plan,theaccountowner(notthechild)callstheshotsonhowandwhentospendthemoney.Notonly
doesthisoversightkeepthechildfromspendingthemoneyonsomethingotherthancollege,itallows
theaccountownertotransferthemoneytoanotherbeneficiary(e.g.,afamilymemberoftheoriginal
beneficiary)foranyreason.Forexample,saytheoriginalchildforwhomtheaccountwassetup
choosesnottogotocollegeordoesntuseallthemoneyintheaccounttheaccountownercanthen
transfertheunusedmoneytoanothernamedbeneficiary.

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Inmanyways,a529collegesavingsplanhasfewerrestrictionsthanothercollegesavingsplans.These
planshavenoincomeoragerestrictionsandhavenoupperlimitonannualcontributions,unlikethe
CoverdellESA,whichlimitscontributionsto$2,000annuallyandrestrictseligibilitytothosewith
adjustedgrossincomeof$110,000orlessifsinglefilers,and$220,000orlessiffilingjointly.However,
oncea529planaccountreachesacertainvaluetypicallymorethan$300,000(variesbystate)
furthercontributionsarenotpermitted.
Anyonecanopenandfunda529collegesavingsplan,parents,grandparents,otherrelativesand
friends.Youmayevenopenonetopayforyourowncollegeexpenses.

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Each529collegesavingsplanoffersitsownrangeofinvestmentoptions,whichmightincludeage
basedstrategies;conservative,moderate,andaggressiveportfolios;orevenamixoffundsfromwhich
youcanbuildyourownportfolio.Typically,plansallowyoutochangeyourinvestmentoptionstwice
eachcalendaryearorifyouchangebeneficiaries.
Whateveragebasedportfolioyouchoose,thefirststepintheprocessisdefiningtheinvestment
objective,saysPeterWalsh,institutionalportfoliomanagerfortheFidelitymanaged529plans.With
appropriate,agebasedinvestments,theobjectiveistogrowtheassetswhilemaintaininganage
appropriatebalancebetweenriskandreturn.
Thinkcarefullyabouthowyouinvestyoursavings.Astrategythatstooaggressiveforyourtimeframe
couldputyouatriskforlossesthatyoumightnothavetimetorecoupbeforeyouneedtopayfor
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college.Beingtooconservativecanalsobeariskbecauseyourmoneymightnotgrowenoughtomeet
costs.
Thisiswhereanagebasedstrategymayreallyhelppeoplewhodontwanttoactivelymanagetheir
investments,becauseitmaintainsamixofassetsbasedonwhenthebeneficiaryisexpectedtostart
college,androllsdowntheriskasthattimegetscloser,saysBernhardt.

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Asmentionedearlier,fordistributionsfroma529usedtopayforqualifiedhighereducationexpenses,
nofederalincometaxesareowedonthedistributions,includingtheearnings.Thisaloneisasignificant
benefit,butthereareothertaxbenefitsaswell.
A529collegesavingsplanmayofferaddedestateplanningbenefits.Anycontributionsmadetoa529
collegesavingsplanareconsideredcompletedgiftsforestatetaxpurposes,sotheycomeoutofyour
taxableestate,eventhoughtheaccountremainsunderyourcontrol,Bernhardtsays.
Giftstoanindividualabove$14,000ayeartypicallyrequireaformtobecompletedfortheIRS,andany
amountinexcessof$14,000inayearmustbecountedtowardtheindividualslifetimegifttax
exclusionlimits(thefederallifetimelimitis$5,430,000perindividual).Witha529plan,youcouldgive
$70,000perbeneficiaryinasingleyearandtreatitasifyouweregivingthatlumpsumoverafiveyear
period.2Thisapproachcanhelpaninvestorpotentiallymakeverylarge529plancontributionswithout
eatingintohisorherlifetimegifttaxexclusion.Ofcourse,youcouldmakeadditionalcontributionsto
theplanduringthosesamefiveyears,butthesecontributionswouldcountagainstyourlifetimegift
taxexclusionlimit.

Dispelling529PlanMyths
Herearesomeofthemostcommonmyths,andactualtruths,about529collegesavingsplans:
1. IfIdon'tusemy529collegesavingsplansavingsforhighereducation,Ilosethemoney.
Actually,themoneyisstillyours,butyoullpaybotha10%penaltyandordinaryincometaxesonthe
earningsifyoudontspenditonqualifiedhighereducationcosts.Toavoidthesepenalties,youcould
transfertheaccounttoanotherbeneficiarywhoplanstogotocollege.Also,ifachildgetsa
scholarshipandyoudontneedallthemoneyforcollege,youpayonlyordinaryincometaxesonthe
earningsportionofthemoneyyoutakeouttooffsetthescholarship,notthepenalty,Bernhardt
says.
2. Icanonlyinvestinmyownstatesplan.
Nottrue.Mostplanshavenostateresidencyrequirementsforeithertheaccountownerorthe
beneficiary.Also,mostplanshavenorestrictionsonwhere(whichstate)youcangotocollege.Its
importanttonote,however,thatsomestateplanshaveextrafeesfornonresidentsthatyoushould
considerbeforedecidingtoinvestwiththatplan.
3. Ican'tcontributemorethan$14,000ayeartoa529collegesavingsplanaccount.
Youcancontributeuptothecontributionlimitsetbythestateoverseeingthe529planyouchoose.
Thislimitisbasedontheaccountbalance.Mostplansallowtotalassetsintheaccounttoexceed
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$300,000beforetheystopallowingadditionalcontributions.The$14,000peryearfigurerelatesto
gifttaxes.Twoparentscouldcontribute$28,000andnotexceedtheannualexclusionlimit.Youcan
actuallymakeuptoa$70,000gifttoonebeneficiaryandtreatitasthoughthegiftwasmadeover
fiveyears(or$140,000fortwoparents).2Additionalcontributionscouldalsocomefromfriendsand
family(again,gifttaxlimitsshouldbeconsidered).Considertalkingwithataxadviserifyouplanto
makecontributionsexceeding$14,000ayear.
4. Thefederaltaxbenefitsassociatedwitha529collegesavingsplanwilleventuallydisappear.
ThePensionProtectionActof2006indefinitelyextendedthefederaltaxfreequalifiedwithdrawals
on529collegesavingsplansavings.
5. OnceIchoosea529collegesavingsplananditsunderlyinginvestments,Iamlockedinand
cannotmakechanges.
Actually,youaretypicallyallowedtorollyour529accountsavingsovertoanothercollegesavings
plan.Additionally,youareallowedtochangeinvestmentswithinyourplantwicepercalendaryear
(ithadbeenoncepercalendaryearpriorto2015)orwhenyouchangebeneficiaries.

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Anyonewithchildrenorgrandchildrenlikelygoingtocollege,whethertheyarebabiesorteenagers,
maywanttoconsiderinvestingina529collegesavingsplanaccount.Thesooneryoustart,thelonger
youhavetotakeadvantageofthetaxdeferredgrowthandgenerouscontributionlimits.
Investorsalsomaywanttoconsidersettingupregular,automaticcontributionstotakeadvantageof
dollarcostaveragingastrategythatcanlowertheaveragepriceyoupayforfundunitsovertimeand
canhelpmitigatetheriskofmarketvolatility.Besides,manyinvestorsdonthavethefinancialcapacity
tomakemeaningful,lumpsumcontributionstoa529collegesavingsplan.
Itcannotbestressedenoughthatassetallocationcannotsolvepoorsavingsbehavior,Walshsays.
Regular,disciplinedsavingisthemostimportantfactoringrowingtheamountyouputawayfor
college.(ReadViewpoints:Howmuchcollegecanyouafford?)
Beingsmartaboutthewayyousaveforcollegealsomeansbeingmindfulofyourotherfinancial
priorities.Fidelitybelievesthatretirementsavingshouldbeapriority,becausewhileyoucant
borrowmoneytopayforretirement,youcanforcollege,Bernhardtsays.Still,ifcollegesavingis
amongyourfinancialgoals,choosingtoinvestina529collegesavingsplanmaybeoneofthemost
educateddecisionsyoucanmaketohelppayforqualifiedcollegecosts.

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UnderstandcostsandmonthlysavingsneedswithCollegePlanner.
GetmoreinformationaboutFidelitymanaged529collegesavingsplans.
SpeaktoaFidelitycollegeplanningrepresentative.Call18005441914.

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98% whovotedfoundthishelpful

1.TrendsinCollegePricing,2014.CollegeBoardAdvocacyandPolicyCenter.
2.Inorderforanacceleratedtransfertoa529plan(foragivenbeneficiary)of$70,000(or$140,000combinedforspouseswho
giftsplit)toresultinnofederaltransfertaxandnouseofanyportionoftheapplicablefederaltransfertaxexemptionand/or
creditamounts,nofurtherannualexclusiongiftsand/orgenerationskippingtransferstothesamebeneficiarymaybemade
overthefiveyearperiod,andthetransfermustbereportedasaseriesoffiveequalannualtransfersonForm709,UnitedStates
Gift(andGenerationSkippingTransfer)TaxReturn.Ifthedonordieswithinthefiveyearperiod,aportionofthetransferred
amountwillbeincludedinthedonor'sestateforestatetaxpurposes.
Pleasecarefullyconsidertheplan'sinvestmentobjectives,risks,charges,andexpensesbeforeinvesting.Contact
Fidelityforthisandotherinformationonany529collegesavingsplanmanagedbyFidelity,callorwritetoFidelityfora
freeFactKit,orviewoneonline.Readitcarefullybeforeyouinvest.
TheUNIQUECollegeInvestingPlan,U.FundCollegeInvestingPlan,DelawareCollegeInvestmentPlan,andFidelity
ArizonaCollegeSavingsPlanareofferedbythestateofNewHampshire,MEFA,thestateofDelaware,andtheArizona
CommissionforPostsecondaryEducation,respectively,andmanagedbyFidelityInvestments.Ifyouorthedesignated
beneficiaryisnotaNewHampshire,Massachusetts,Delaware,orArizonaresident,youmaywanttoconsider,before
investing,whetheryourstateorthebeneficiary'shomestateoffersitsresidentsaplanwithalternatestatetax
advantagesorotherbenefits.
Unitsoftheportfoliosaremunicipalsecuritiesandmaybesubjecttomarketvolatilityandfluctuation.
Investinginvolvesrisk,includingriskofloss.
Votesaresubmittedvoluntarilybyindividualsandreflecttheirownopinionofthearticle'shelpfulness.Apercentagevaluefor
helpfulnesswilldisplayonceasufficientnumberofvoteshavebeensubmitted.
FidelityBrokerageServicesLLC,MemberNYSE,SIPC,900SalemStreet,Smithfield,RI02917
613840.6.0

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