A state-sponsored, tax-advantaged investment program designed to help finance education expenses. There are two types of 529 plans: prepaid tuition plans and college savings plans. Tax advantages, investment options, restrictions and fees can vary a great deal from one plan to another.
529 Prepaid Tuition Plans
Also known as Prepaid Education Arrangements (PEAs), 529 prepaid tuition plans allow families to buy all or part of a public in-state education at present-day prices. The value of the investment is guaranteed by the state to meet or exceed annual in-state public college tuition inflation. Plan costs can vary, depending on how close the student is to college.
The individual or entity establishing an Account or any successor to such individual or entity. References in this document to “you” mean you in your capacity as the Account Owner.
The account application is completed and submitted with payment to participate in a plan. It incorporates by reference the plan’s Plan Description and Savings Trust Agreement.
A charge for expenses incurred in the administration of a 529 college savings plan, which may include services such as recordkeeping, auditing, and preparing and printing statements and reports. This fee is deducted from your holdings based on a percentage of your assets in the plan. You can find a description of the fees and expenses charged by a plan in the Plan Description and Savings Trust Agreement.
Age-based Portfolios aim to make investment decisions easier by placing you in a portfolio based on the beneficiary’s age. Portfolios for younger children will invest more heavily in equities, while older children’s portfolios will tend to include more fixed income and money market investments.
Automatic Investment Plan (AIP)
Automatic Investment Plan allows you to contribute a fixed amount of money in regular intervals. Funds are automatically deducted from the your checking or savings account.
Annual Rate of Return
The rate of return on your investment, expressed as a percentage of the total amount invested.
A strategy for maximizing gains while minimizing risks in your investment portfolio. Asset allocation involves dividing your assets on a percentage basis among different broad categories of investments, including equity, fixed income, and money market.
The individual designated by the Account Owner to use the savings for college expenses. Anyone can be a beneficiary, including the account owner. A beneficiary can reside in the United States or abroad. You can open up more than one account for the same beneficiary, but you cannot have more than one beneficiary on the same account.
The Internal Revenue Code of 1986, as amended.
Contingent Deferred Sales Charge (CDSC)
A common type of deferred sales charge in some 529 college savings plans and mutual funds. The CDSC normally declines each year and is eliminated after a number of years.
Coverdell Education Savings Account (CESA or ESA)
A trust or custodial account in which contributions grow on a tax-deferred basis and withdrawals are tax free if used to pay for a broad range of educational expenses, including private high school tuition. Unlike 529 plans, ESAs have annual contribution limits and income restrictions.
An account that is created for the benefit of a minor, with an adult (agent, bank, trust company, or other organization) serving as the custodian in accordance with applicable state law. The adult controls the funds until the child reaches the age of majority, at which point the account transfers into the child’s name.