|
|
About 529 Plan Accounts |
||||||
What is a 529 Plan?529 Plans are flexible, tax-advantaged accounts designed specifically for college savings. They are offered by individual states, however you do not have to be a resident of a particular state to invest in that state's plan. For those saving with a 529 Plan, when the child reaches college age, withdrawals used for qualified higher education expenses are federal income tax-free, and in many cases state income tax-free. How do I choose a 529 Plan?First, there are some features that are common to all state-sponsored 529 plans including:
When choosing a 529 Plan, Fidelity suggests that families consider the following:
If my state offers a tax deduction, should I just invest in my own state's plan?Investors should first consider investing in their own state's plan and determine if that plan offers significant tax benefits such as a state income tax deduction. However it's possible that a plan may offer state tax incentives, but have a record of poor performance or high fees that offset tax benefits. Fidelity suggests that investors more broadly consider a plan's investment manager, investment options, plan performance and underlying fees and expenses when determining which plan may be best for them. Which 529 plans does Fidelity manage?Fidelity manages four state-sponsored 529 plans, but you do not have to be a resident of one of the states to invest. The plans share virtually identical features and management philosophies.
I have an UGMA/UTMA account; can I transfer that into a 529 Plan account?Yes. However you must first liquidate the assets in the UGMA/UTMA account to cash and pay any applicable taxes. Investments may be subject to fees and expenses. Then you can invest the cash in an UGMA/UTMA (Custodial) 529 Plan Account. An UGMA/UTMA 529 plan account will be subject to the rules for both types of accounts including applicable UGMA/UTMA state statutes. You cannot change the beneficiary of an UGMA/UTMA 529 plan account. You may want to consult a tax professional regarding your specific tax situation. If I have more than one child, should I have more than one account?You will likely want separate 529 accounts for each child. Each 529 Plan account can have only one beneficiary. Many investors choose to take advantage of the age-based portfolio strategy for their accounts, which invests savings based on the age of the child. For this reason, you may want separate accounts for children of different ages. What are the fees and expenses?
I have an account in another state's 529 Plan. Can I transfer my account to one of the Fidelity managed 529 plans?Yes, you can. This type of transfer is called a rollover. Under federal tax laws you are allowed to rollover a 529 account for each beneficiary once over any 12-month period. To do a rollover, download the Fidelity College Investing Plan Rollover Form (PDF) What happens if my child doesn't go to college?529 plans offer significant flexibility should the designated beneficiary (student) decide not to attend college. You can take out the money as a non-qualified withdrawal but any earnings on non-qualified distributions are subject to federal income taxes at the Distributee's rate as well as a 10% federal penalty tax. Or you can change the beneficiary on your 529 Plan account to eligible family members of the original beneficiary without incurring federal income tax and the 10% federal penalty tax. A family member is a person who has one of the following relationships with the original beneficiary: (1) son or daughter; (2) stepson or stepdaughter; (3) brother, sister, stepbrother or stepsister; (4) father, mother or an ancestor of either; (5) stepfather or stepmother; (6) son, daughter of a brother or sister (7) brother or sister of a father or mother; (8) son or daughter-in-law, father or mother-in-law, brother or sister-in-law; (9) spouse of the individuals listed in (1) - (8) and the spouse of the beneficiary; and (10) any first cousin. Use the College Investing Plan Beneficiary Change Form(PDF) I remember hearing that the tax-free status of 529s plans would be ending soon. Is that true?The Pension Protection Act of 2006 permanently extended the federal income tax-free qualified withdrawals of 529 college savings plans, which were previously set to expire in 2010. This means that any contributions made to 529 plans in the past and any contributions made in the future will grow tax-deferred, and distributions for qualified higher education expenses will be Federal income tax free. The UNIQUE College Investing Plan, U.Fund® College Investing Plan, Delaware College Investment Plan and the Fidelity Arizona College Savings Plan are offered by the State of New Hampshire, MEFA, the State of Delaware and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments. If you or the designated beneficiary is not a New Hampshire, Massachusetts, Delaware or Arizona resident, you may want to consider, before investing, whether your state or the designated beneficiary's home state offers its residents a plan with alternate state tax advantages or other benefits. Units of the Portfolios are municipal securities and may be subject to market volatility and fluctuation. PDFs require Adobe® Reader®. This page will open in a popup window. Please carefully consider the Plan's investment objectives, risks, charges and expenses before investing. For this and other information on any 529 College Savings Plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view online. Read it carefully before you invest or send money. |
 |
||||||
