Frequently Asked Questions

Get answers to your questions about 529s.

CollegeBound 529

What is CollegeBound 529?

CollegeBound 529 is a 529 education savings plan designed to help individuals and families save for college. Features include tax-deferred growth; no minimums; no income limits; and investment management from Invesco, one of the world's leading independent investment management firms.

Learn more: Why CollegeBound 529

Who can be a beneficiary?

A person of any age can be a 529 beneficiary as long as they have a valid Social Security number. The beneficiary does not need to be related to the account owner. The account owner can designate a child, adult or even themself as the beneficiary. The beneficiary can also be changed to a member of the family of the existing beneficiary without income tax consequences.1

1 For beneficiary changes to occur without federal or state income tax consequences, the new beneficiary must be a family member of the current beneficiary. Please see the Program Description for a definition of "Member of the Family."

Does the account owner retain control of the money?

Yes. The account owner chooses the investment portfolios, the beneficiary and the ultimate distribution of the money.

Does the beneficiary have to attend college in Rhode Island?

No. Funds can be used at eligible community colleges, public and private undergraduate and graduate universities, or vocational/trade schools across the country. View eligible institutions.

What if the beneficiary does not go to college immediately after high school?

CollegeBound 529 does not require the beneficiary to attend college immediately after graduating high school. There are no restrictions on when a CollegeBound 529 account can be used to pay for college expenses.

Can money be rolled over from another 529 plan or educational account to CollegeBound 529?

Yes. The account owner can perform a rollover from another 529 plan into their CollegeBound 529 account for the same beneficiary once every 12 months.

If you have an account, download the rollover form.  If you don't have an account, please contact your financial advisor to open a CollegeBound 529.

What types of expenses or fees are involved with the plan?

CollegeBound 529 has program management fees, account fees and underlying fund expenses. Other fees, charges and exclusions may apply. Please see the Program Description for more information.

 

Can a 529 be used for K-12 costs?

Yes. Families with children in grades K-12 can take federal tax-free withdrawals1 of up to $10,000 per year to pay for public, private, religious elementary or secondary school tuition. However, whether K-12 tuition will qualify for state tax benefits is still being determined on a state-by-state basis.

Learn more: Using a 529 plan for K-12 costs: 4 things to consider

 

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state and local taxes. None of the State of Rhode Island, its agencies, Invesco Distributors, Inc., Ascensus College Savings Recordkeeping Services, LLC, nor any of their applicable affiliates, provide legal or tax advice. This information is provided for general educational purposes only and is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specific state law requirements.

Saving for College

How much should families save for college?

The earlier families start saving for college, the more savings they can accumulate. So, the most important step is the first step – getting started.
And, while it's best to start early, it's important to remember that it's never too late to save. Even if a child is nearing or already attending college, money contributed to a CollegeBound 529 account can accumulate tax-free earnings for future semesters and eligible graduate programs.

Calculate education costs with our college savings calculator.

Learn more: Why saving early is a smart move

Should families with multiple children open one or multiple accounts?

Opening a 529 account for each child could remedy the drawbacks of having only one account for multiple children because:

  • All funds for qualified expenses are distributed tax-free1 for each beneficiary.
  • The most appropriate time-based investment allocation can be chosen for each child.
  • Families could potentially maximize tax breaks.
  • It's easier to track progress for each child.

One account for two children may make sense if, for example, there's a significant age difference. The owner could change the beneficiary when the older child has completed college and, of course, tweak the 529 investment allocation for the younger child.

Learn more: 529 plans for parents of multiple children: One account or multiple?

 

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state and local taxes.

Can grandparents open a 529 for a grandchild?

Yes, grandparents and other family members can open and contribute to a 529. 529 plans can offer several potential tax breaks. Grandparents should talk to their financial advisor for more information.

Learn more: Helping your grandchildren save for a higher education

 
What education savings options are available?
The cost of college is rising quickly, and families need their money to grow in order to keep up. Fortunately, there are several types of college savings solutions available, each with its own unique set of rules, features and benefits. Understanding the basics is an important first step in the selection process.
 
  1. 529 plans: Operated by a state or educational institution, 529 plans can make it easy to save for education for a designated beneficiary. There are two types of 529 plans: pre-paid tuition plans, which lock in costs and have residency and other restrictions, and savings plans, which don’t lock in costs but are much more flexible. While certain withdrawals are subject to federal, state and local taxes, 529 savings plans are tax-advantaged savings plans that have high contribution limits and allow earnings to grow tax-free when used for education expenses. Many states also offer additional tax incentives.
  2. Coverdell Education Savings Accounts (CESAs): These accounts are used to pay the education expenses of a designated beneficiary. They offer tax-free growth and tax-free withdrawals1 when the funds are used for qualified education expenses. Withdrawals can be used for qualified elementary and secondary education expenses, as well as for college. However, the maximum annual contribution is low at only $2,000 per beneficiary, and they are only available to families with income below a certain level.
  3. Custodial accounts (UGMA/UTMA): Custodial accounts can be used by parents or grandparents to invest in a child’s education, while taking advantage of the child’s generally lower tax rate. These accounts also have no maximum investment limit. Because minors can’t directly own an investment or bank account, an adult custodian must manage and use the funds for the benefit of the minor child, as prescribed under the state’s Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
  4. Taxable accounts (savings accounts): These accounts are set up and owned by individuals with after-tax dollars to save for college or other goals. All earned income is taxable annually at the account owner’s federal and state income tax rate, and dividends and capital gains are taxed at a lower rate.

Learn more: Understand your college savings options

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

Can I utilize required minimum distributions for 529 plans?
Yes. If you have a client that is over 70 ½ that does not need all or part of their required minimum distribution, they have the ability to fund a 529 savings account. The potential advantages to this are:
 
  1. Tax-free earnings and compounding: Using RMDs to fund a 529 allows earnings to grow and compound tax-free.1
  2. Students obtain more federal financial aid: Grandparent-owned 529’s are not included in the federal financial aid asset calculations since determination is limited to the income and assets of both student and parents. Distributions from the grandparent-owned 529 will count as student income for the financial aid determination for the year following the distribution.
  3. Maintain ownership flexibility: You can establish 529 accounts for multiple children and divide your RMDs between them or change the beneficiary and retain the tax benefits.
  4. Nearly all retirement accounts are subject to the RMD rule, including IRAs, 401(k), 403(b) and 457(b) accounts and Keogh plans. So if your client does not need all or part of their RMDs, consider using that money to fund a 529 account. It is truly the gift that keeps on giving, helping to provide a successful future for younger family members.

Learn more: Putting your RMDs to work

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

Paying for College

How can the account owner withdraw money to pay for college?

Withdrawals can be made online or by downloading and mailing in the distribution request form.  Account owners can also request a qualified distribution by telephone at 877.615.4116.

Learn more: Finding the right distribution strategy for your family
 

What constitutes a qualified withdrawal for higher education expenses?

Qualified withdrawals1 are withdrawals used to pay for the beneficiary's higher education expenses while attending an eligible institution. Qualified expenses include tuition, fees, books, supplies and equipment. Subject to certain limitations, room and board expenses are also included for students attending eligible institutions on at least a half-time basis.

 

1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state and local taxes.

Should families consider student loans to finance education?

By planning and investing for education, instead of financing with student loans, a debt-free education could be possible.

Learn more: The impact of student loans

How does a 529 affect financial aid?

A 529 can affect financial aid, but the impact will vary depending on the account owner.

The federal aid formula assesses parental assets at a maximum rate of 5.64%. That means that in general, for every $1,000 in a 529, the "expected family contribution" toward college costs could increase by only $56 at most. Importantly, 529 accounts owned by dependent students are counted as parental assets and assessed at the 5.64% rate. This is significant because other types of student assets can be assessed at the much higher rate of 20%.

For grandparents and anyone else who contributes money toward the student's college expenses, nothing is counted as assets. But, once the student spends that money on qualified expenses, they’ll have to report that money as income.


Learn more: Financial aid: A little advanced planning can go a long way 

Source: fafsa.ed.gov

None of the State of Rhode Island, its agencies, Invesco Distributors, Inc., Ascensus College Savings Recordkeeping Services, LLC, nor any of their applicable affiliates, provide legal or tax advice. This information is provided for general educational purposes only and is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specific state law requirements.