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Find Answers to Some Frequently Asked
Questions on the Alabama Higher Education 529 Fund
Q:
How much will I need for a child’s
college expenses?
A: It’s difficult to determine the exact amount today’s
children will need for their college education tomorrow.
However, by 2023, a four-year education at a public
university could cost around $126,000. The cost could rise
to more than $299,000 for four years at a private university.1 The best
way to prepare is to start investing today.
Q: Who is eligible to participate in the Alabama Higher
Education 529 Fund?
A: Any U.S. citizen or legal U.S. resident age 19 and
older—whether a parent, grandparent, friend or relative—can
establish an account. State or local governments within the
United States, corporations, trusts or estates may also be
account owners. There are no income limits on contributors,
making it easy to open an account.
Q: How much can I contribute to an account?
A: Contributions can be made until the value of all Alabama
Higher Education 529 Fund accounts and Alabama Prepaid
Affordable College Tuition (PACT) Program2 contracts held on
behalf of a designated beneficiary reach $300,000 (one of
the highest contribution limits available). Once this limit
is reached, no additional contributions are allowed—but
earnings may continue to grow. The minimum initial
investment for Alabama residents is $250, or $25 per
portfolio per month if establishing an automatic investment
plan.
Q: What are the potential tax benefits of the program?
A: The Alabama Higher Education 529 Fund provides several
tax advantages to help you invest for college. Start with
federal tax-deferred growth potential on your
investment—meaning you don’t pay taxes on the money while
it’s in the account, which can provide faster earnings-accumulation potential. Withdrawals used for qualified
higher-education expenses are also exempt from both Alabama
state income taxes and federal income taxes, so more money
will be available to pay for college costs. However, please
keep in mind that withdrawals for non-qualified expenses may
be subject to federal income taxes as well as a 10 percent
early-withdrawal penalty.
Q: Are there estate-tax benefits with the program?
A: The gift-tax advantages allow you to contribute up to
$12,000 annually per beneficiary—$24,000 for married
couples filing jointly who elect to split gifts—without
paying gift-taxes or filing a gift tax return. You should be
aware, however, that contributions to the plan are treated
as a gift to the beneficiary for gift and
generation-skipping transfer tax purposes, 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. 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.
Before investing, consult with a qualified tax advisor for
more information about the potential tax benefits and
consequences related to the program.
Q: How can the money be used?
A: Money held in an Alabama Higher Education 529 Fund can be
used to pay for many qualified higher-education expenses,
including tuition, fees, supplies, room and board, books and
certain required equipment. The money also can be used for
graduate school expenses.
Q: Can the money only be used at certain schools?
A: Money invested in the Alabama Higher Education 529 Fund
can be used at accredited public or private undergraduate,
junior college, trade or graduate schools. There are no state residency
requirements, which means the student can attend any school
in the United States.
Q: What happens if the intended student does not attend
college?
A: With the Alabama Higher Education 529 Fund, the owner is
in complete control of the assets and makes all of the
decisions regarding withdrawals from the account. So, should
the beneficiary choose not to attend college, the money can
remain in the plan for later use. Additionally, you can
change the beneficiary on the account or you can make a
non-qualified withdrawal. Please keep in mind—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. Also, there will be tax consequences
associated with a non-qualified withdrawal. Consult your tax
advisor for more information.
Q: What happens if the intended student does not attend
college by a certain age?
A: There is no age requirement. However, if an account
agreement has not been terminated after a period of 60 years
from its effective date, the account will be closed.3 The
account owner may request that the account remain in effect
beyond the 60-year period by filing a written request.
Q: If I contribute to the Alabama Higher Education 529 Fund,
can I also claim a Hope Scholarship or Lifetime Learning
Credit?
A: The beneficiary or the beneficiary’s parent may claim a
Hope Scholarship Credit or Lifetime Learning Credit for
qualified tuition and related expenses, provided other
eligibility requirements are met, but cannot use the same
expenses to justify a tax-free distribution from a qualified
tuition program. Talk to a tax advisor for more information,
as the State of Alabama and Van Kampen do not provide tax
advice.
Q: What investment options are available under the Alabama
Higher Education 529 Fund?
A: The Alabama Higher Education 529 Fund features three
investment strategies.
Flexible Years to Enrollment Portfolios offer five distinct
time horizons based on the beneficiary’s years to college
enrollment. Within each time horizon there are up to three
risk categories—aggressive, moderate or conservative. Assets
are allocated among a professionally created mix of equity,
bond and money market mutual funds tailored for the
portfolio’s unique objective and time horizon.
Fixed Portfolios allow you to design and maintain your own
asset allocation mix using three portfolios—100 percent
Equity, 100 percent Bond or Short Term Income (50%
Short Term U.S. government bonds, 50% cash).
Individual Fund Portfolios enable you to customize an asset-allocation strategy. Select
from stock, bond, global and international portfolios.
Unlike the Flexible Years to Enrollment and Fixed
Portfolios, each Individual Fund Portfolio is invested in
only one Van Kampen mutual fund.
Q: Am I locked into the investment strategy I select when I
open my account?
A: No, you can change the investment selections for your
account once per calendar year, or if you decide to change
the designated beneficiary of the account.
Q: Is it possible to move assets between portfolios?
A: You can diversify existing assets across the Alabama
Higher Education 529 Fund's portfolios - simply enroll in
the plan's systematic exchange program when establishing a
new account. This will enable you to move a specific amount
from one portfolio to another at regular, predetermined
intervals - and it may also help you reduce risk associated
with market volatility.
Q: What kind of investments are used in the Alabama Higher
Education 529 Fund Portfolios?
A: The underlying investments in each Alabama Higher
Education 529 Fund Portfolio consist of mutual funds. The
Plan is professionally managed by Van Kampen Funds, which
brings investors nearly four generations of money management
experience, through bull and bear markets and economic peaks
and valleys.
Q: Can I transfer or roll over money from another 529 plan
or UGMA/UTMA account?
A: You can roll over or transfer assets from another
Qualified Tuition Program, Coverdell Education Savings
Account, or Qualified U.S. Savings Bond redemptions into
your Alabama Higher Education 529 Fund account without
incurring federal income taxes (assuming certain
requirements are met).
You will need to complete a Transfer/Rollover Form and
provide additional documentation on the assets, including
earnings information. UGMA/UTMA assets may also be
contributed to an Alabama Higher Education 529 Fund account
if permitted under the applicable UGMA/UTMA. Please consult
your tax advisor before transferring such funds. UGMA/UTMA
accounts are subject to special rules, including a
restriction on the ability to change the beneficiary of
these accounts.
1 Estimates based on 2006-2007 inflation-adjusted tuition,
fees, room and board, as reported in The College Board's
"Trends in College Pricing," 2006.
2 Alabama residents also have another tax-advantaged
investment opportunity for college: The Prepaid Affordable
College Tuition (PACT) Program, which is also offered trough
the State of Alabama.
3 The account may be deemed abandoned property earlier than
the 60-year limit if required by applicable law. |
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Frequently
asked questions
