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Higher Education 529 Features and Benefits
Build a strategy that is right for you, and see how tax-advantaged
investing can help you put more money toward that diploma.
First, identify your needs and goals.
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Tax Advantages
- Experience growth with federal taxes deferred. An investment in the plan grows
tax-deferred, meaning that gains on an investment in the plan are exempt from annual
federal income taxes.
- Make withdrawals exempt from federal taxes. When you’re ready to withdraw money
for college, your withdrawals are exempt from federal income taxes. That means more
of your investment can be applied toward your student’s education. However, withdrawals
for non-qualified expenses may be subject to federal taxes as well as a 10 percent early
withdrawal penalty. Contributions are not deductible for federal income tax purposes.
Give a Gift, Build a Legacy
- Contribute up to $12,000 annually per beneficiary—or $24,000 for married couples filing jointly who elect to split gifts—without filing a gift-tax form or paying gift taxes.
However, contributions to the plan are treated as a gift to the beneficiary for gift and
generation-skipping transfer tax purposes, so you need to be aware of this, particularly if
you are making other gifts to the beneficiary during the same year.
- Give a five-year gift in one lump-sum per beneficiary. Subject to special rules, you may
reduce the value of your estate by increasing your initial investment with a five-year gift of
$60,000 per beneficiary for an individual, or $120,000 for married couples filing jointly.
These rules assume that no additional gifts to the beneficiary are made within the five years.
Also, note that, in some cases, if the account owner dies before the five-year period has
elapsed, the remaining portion of the contribution will be included in the account owner’s
estate for estate tax purposes and may be subject to generation-skipping taxes.
Flexible Investment Options
- Select from three investment strategies. You and your financial professional can build a
college investment plan that is consistent with your individual needs and goals. Our
carefully crafted Years to Enrollment Portfolios are based on asset-class models developed by
Ibbotson Associates, a leading authority on asset allocation. We also offer Fixed Portfolios
and Individual Fund Portfolios, so you and your financial professional can create your own
asset mix.
Contribute More
- Invest more than many college investment plans. Contribute until the value of the account
reaches $300,000, per beneficiary, during the life of the fund. Once you reach the maximum,
your investment’s earnings may continue to grow—tax free. The maximum account balance
per beneficiary is reviewed by the Board of Trustees of the Program Trust Fund and may
change. The maximum applies to the aggregate value of accounts in the Higher Education
529 Fund and the Alabama Prepaid Affordable College Tuition (PACT) Program.
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- Use your investment for undergraduate or graduate studies at most accredited colleges and universities, in
the United States or overseas, for qualified higher education expenses such as tuition, fees, room and board,
books and supplies.
- Account beneficiary can be changed to another family member. It is important to note that the new
beneficiary must be a member of the family of the previous beneficiary, as defined by Section 529 of the
Code and the program disclosure statement, to avoid federal income tax consequences. Certain changes
may result in gift and generation-skipping transfer taxes.
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- Anyone is eligible to participate. There are no adjusted gross income limits to meet, and no age requirements.
- There are no state residency requirements. Any U.S. citizen or resident, 19 or older, corporations, trusts and
certain not-for-profit entities, can open an account.
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- Earnings can grow with federal taxation deferred.
- Withdrawals are exempt from federal taxes, if used for qualified higher education expenses. However, note
that withdrawals for non-qualified expenses may be subject to federal taxes as well as a 10 percent early
withdrawal penalty. Contributions are not deductible for federal income tax purposes. For non-Alabama
residents, if you or your beneficiary resides in or pays income taxes to a state that offers its own 529 college
savings or pre-paid tuition plan, that state may offer state or local tax benefits, but only for participation in
such in-state plan.
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- Account owner maintains control at all times, even after the beneficiary turns 18. If your student elects not
to attend college, you, as the account owner, can change the beneficiary to another family member, gift the
investment, or liquidate the account.
- Participants may contribute up to $12,000 annually per beneficiary—or $24,000 per beneficiary for married couples
filing jointly who elect to split gifts—without filing a gift-tax form or paying gift taxes. However, contributions
to the plan are treated as a gift to the beneficiary for gift and generation-skipping transfer tax purposes so
you need to be aware of this, particularly if you are making other gifts to the beneficiary during the same year.
Also, please keep in mind that gift-giving limits are subject to certain exceptions.
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- Combine any of the portfolios to create your own asset allocation model.
- Years
to Enrollment Portfolios are tailored to the beneficiary’s investment time horizon and the account
holder’s investment risk tolerance. As the beneficiary gets closer to enrollment, the money in the account is
automatically shifted to more conservative portfolios.
- Fixed
or Individual
Fund Portfolios allow account holders to create customized investment portfolios with
their financial professionals.
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- Establish an account for as little as $1,000 or set up an automatic investment plan for $25 a month.1
- Invest more than many college investment plans. Contribute until the value of the account reaches $300,000,
per beneficiary, during the life of the fund. Then, once you reach the maximum, your investment’s earnings
may continue to grow—tax free. The maximum account balance per beneficiary is reviewed by the Board of
Trustees of the Program Trust Fund and may change. The maximum applies to the aggregate value of accounts
in the Higher Education 529 Fund and the Alabama Prepaid Affordable College Tuition (PACT) Program.
1 Consult your tax advisor or financial professional regarding minimum initial investment requirements for Alabama residents.
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Each 529 Program Portfolio is subject to the risks of the underlying fund(s) in which it
invests. The exact degree and nature of these risks will vary depending on the specific
underlying fund(s) in which a 529 Program Portfolio invests. In general, an investment in
an “aggressive” portfolio entails more risk than an investment in a “conservative” or
“moderate” portfolio. Also, there are special risks that are inherent to international investing
including those related to currency fluctuations, foreign political and economic events.
For more risk information about the 529 Program Portfolios and the underlying funds in
which they invest, see the Program Disclosure Statement.
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QUICK LINKS
The Higher Education 529 Fund "The Program" is sponsored by the State of Alabama and distributed by Van Kampen Funds Inc.