- What is a 529 Plan?
- How do I choose a 529 Plan?
- If my state offers a tax deduction, should I just invest in my own state's plan?
- Which 529 plans does Fidelity manage?
- I have an UGMA/UTMA account; can I transfer that into a 529 Plan account?
- If I have more than one child, should I have more than one account?
- 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?
- What happens if my child doesn't go to college?
- I remember hearing that the tax-free status of 529s plans would be ending soon. Is that true?
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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.
TopHow do I choose a 529 Plan?
First, there are some features that are common to all state-sponsored 529 plans including:
- Tax-deferred growth of any investment earnings (meaning you don't have to pay taxes annually on any investment growth, taxes are paid when distributions are taken)
- Federal income tax-free distributions for qualified higher education expenses
- Flexibility with how funds can be used. 529 Plan distributions can be used for tuition, books, room and board and other qualified higher education expenses at most accredited colleges and universities nationwide – and at eligible foreign institutions
When choosing a 529 Plan, Fidelity suggests that families consider the following:
- In-state tax benefits, such as state tax deductions
- Investment options – there are a variety of investment options available in 529 Plans including age-based portfolios which invest savings based on a child's age and the number of years until he/she will be starting college
- Fees and expenses, including account management fees and management fees on underlying portfolios
- Plan performance – when available, review 1, 5 and 10-year performance figures
- Investment management – what financial services company is managing the plan and what types of services do they offer?
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.
TopWhich 529 plans does Fidelity manage?
Fidelity manages five 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.
- The UNIQUE College Investing Plan offered by the state of New Hampshire
- The U.Fund College Investing Plan offered by the Massachusetts Educational Financing Authority (MEFA)
- The Delaware College Investment Plan offered by the state of Delaware
- The Fidelity Arizona College Savings Plan offered by the Arizona Commission for Postsecondary Education
- The ScholarShare® College Savings Plan sponsored by the ScholarShare Investment Board, an agency of the State of California
If you or your designated beneficiary are not a New Hampshire, Massachusetts, Delaware, Arizona or California resident, you may want to consider, before investing, whether your or the designated beneficiary's home state offers its residents a plan with alternate state tax advantages or other benefits.
TopI 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.
TopIf 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 Fidelity's 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.
TopWhat are the fees and expenses?
- There is no annual account fee associated with any of the Fidelity-managed 529 Plan plans.
- There is a program management fee that covers the cost of trust administration services, such as recordkeeping, statements and customer service.
- The program management fee, including the state fee, for the Actively Managed Fund Portfolios is 0.30%.
- The program administration fee, including the state fee, for the Index Fund Portfolios varies by Index Portfolio, between 0.18% and 0.40%.
- In addition, each of the underlying mutual funds in which Portfolios assets are invested also has investment management fees and other expenses. The Plans do not invest in any mutual fund with a sales load. Underlying mutual fund fees vary by Portfolio. Please see the respective plan Fact Kit for more detail on 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) or call us at 800-544-1914. Fidelity can initiate the rollover for you.
TopWhat 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).
TopI 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.
TopThe UNIQUE College Investing Plan, U.Fund College Investing Plan, Delaware College Investment Plan Fidelity Arizona College Savings Plan, and ScholarShare College Savings Plan are offered by the State of New Hampshire, the Massachusetts Educational Financing Authority (MEFA), the State of Delaware, the Arizona Commission for Postsecondary Education, and the ScholarShare Investment Board, an agency of the State of California, respectively, and managed by Fidelity. If you or the designated beneficiary are not a New Hampshire, Massachusetts, Delaware, Arizona, or California resident, you may want to consider, before investing, whether your 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.
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