Frequently asked questions about 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.

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."

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

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.

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 education expenses.

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 your client has an account, they can download the rollover form.

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.

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.

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. 

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.¹

1. 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.

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.¹

• 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.

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.

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 professional for more information.

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 education savings solutions available, each with its own unique set of rules, features, and potential 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.¹

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.

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.

Yes. If you are over 70 ½ and do not need all or part of your required minimum distribution, you will 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 529s are not included in the federal financial aid asset calculations since determination is limited to the income and assets of both the 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. Greater 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 you do not need all or part of your 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.
   

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.

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.

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

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.

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

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.

Source: fafsa.ed.gov