What is a 529 Plan?
A 529 plan is a way to save for college. There are two types of plans: savings and prepaid. Independent 529 Plan is a prepaid plan, and is the first plan to be sponsored by colleges instead of the states.
What are the Advantages to a Family?
Families receive guaranteed protection against future tuition increases, freedom from market risk, federal income tax exemption on any increase in value of the certificates when they are used for tuition, and portability of their certificates to over 200 colleges, at a cost below today's tuition.
How Does the 529 Plan Work?
Colleges maintain control over their own tuition and fees. A certificate purchased by a family will guarantee a different amount of tuition at teach college, depending on current tuition and the certificate discount rate set by the college.
Can You Give Me an Example?
A 529 Plan certificate purchased for $10,000 today might guarantee a year's worth of tuition at College A in the future, or one half year's tuition at College B, depending on tuition rates. These commitments are guaranteed even if tuition rates rise sharply before a student enrolls or investment returns have been weak. Certificates are not identified with a specific college until they are redeemed and may be used at any of the participating colleges.
What is a Certificate Discount?
Each college offers an additional incentive to purchasers - a discount off the price of tuition at the time of purchase -- prorated to the amount of tuition the person buys. The discount is a minimum of one-half of one percent per year and compounds, so that the longer a purchaser holds the certificate, the more valuable it is. The certificate discount rate is fixed for the life of that certificate by each college. What are the Maximum and Minimum Purchase Amounts?
For 2003-2004, the maximum is about $137,500. That is based on the amount that would purchase five years tuition and fees at the member college with the current highest tuition/fees. The minimum purchase may be as low as $500, or $25 per month with an automatic bank or payroll transfer. However, if $500 is not accumulated with 24 months, the funds will be returned to the purchaser without interest.
How Long Do You Have to Hold a Certificate Before Redeeming It?
A certificate must be held a minimum of 36 months from the first purchase within that program year before it can be redeemed for educational services. A certificate is eligible for refund or rollover to another 529 plan after 12 months.
Who is Involved?
A national consortium of independent colleges and universities. A volunteer board of directors oversees the consortium and a full-time staff. These directors are administrators of independent colleges or related organizations. TIAA-CREF will administer the program.
How do People Sign Up?
They can sign up on the web at www.independent529plan.org or by downloading an application from the website and mailing it in. They can phone a toll-free number (888/718-7878) and request an enrollment kit.
How Are Fees Charged to Families?
There are no fees and no broker commissions.
Who is Eligible to Purchase or Own Certificates?
Initially, ownership of Independent 529 Plan certificates will be restricted to adult U.S. residents. Ownership of certificates will also be permitted for a trust, estate, partnership, association, company or corporation, either for a named beneficiary or for a scholarship for unnamed beneficiaries. Grandparents, parents, aunts, uncles, friends, almost anyone can open an account for a student.
