529 FAQs

What is a CollegeChoice 529 Plan? 

• Named after section 529 of the Internal Revenue Code, these plans came about in 1996. They are specifically set up to pay for the higher education expenses of a beneficiary. Each state has a different version of the plan with different benefits and fees. In Indiana, they are called CollegeChoice plans.
  • There are two types of CollegeChoice 529 plans: Advisor and Direct.
  • Advisor plans are sold through financial advisors who choose to offer them. There is a sales charge involved.
  • AMI uses the Direct plan, which allows clients to open up accounts at a lower cost since there is no sales charge. Advisors such as AMI can be added as third parties on the account.

What are the benefits to using one? 

• Earnings grow tax free and are not subject to federal income tax when used for qualified educational expenses.
• Indiana residents are eligible for a state tax credit in the amount of 20% of their contribution of the CollegeChoice plan.  In 2024, the maximum annual credit is $1,500, which would come from $7,500 of contributions.
  • The credit is per household. You cannot get multiple tax credits, no matter how many 529 accounts you have.
  • It is important to note you have the option to contribute more than $7,500.
    • You will still get attractive tax treatment when you use the money for qualified educational expenses.
    • Contribute up to $18,000 ($36,000 for married couples) annually per beneficiary without filing a gift tax return or utilizing part of your lifetime exemption, as of current tax law in 2024.
    • Able to frontload an account up to $90,000 ($180,000 for married couples) per beneficiary in a single year and take advantage of five years’ worth of tax-free gifts. However, any additional gifts to the beneficiary within the five years will require a gift tax return to be filed.

• Withdrawals from a 529 college savings account are permitted up to $10,000 per year per student for tuition expenses in connection with enrollment and attendance at an elementary or secondary public, private or religious school (“K-12 tuition”).

Do I have to use my own state’s plan? 

• No, you can sign up for any state’s plan. However, you will not receive the tax credit benefits of the plan if you are not a resident of that state.
• The state of the plan has no effect on where the beneficiary can go to college. Most higher education institutions nationwide are qualified under any 529 plan.
• However, if an Indiana resident, it is typically most advantageous to the use the state’s plan as a result of the state tax credits available.

What are the different investment options? 

• There are two ways to invest within a CollegeChoice 529 account: age-based portfolios and individual portfolios.
  • Age-based portfolios are invested automatically and require little maintenance. The portfolio asset allocation (% stocks, % bonds, % cash) is based on the expected year of college enrollment. For younger beneficiaries, the investments are more aggressive. As the beneficiary ages, they get continually more conservative.
  • Individual portfolios offer a menu of funds for the account owner to choose from. There is also a menu of mutual funds for account owners to choose from to create individual portfolios. This offers more customization, but the owner is responsible for rebalancing.
  • You are permitted to change your investment option twice per calendar year.
  • You can invest all of the account in one of the above options or split between multiple options.

What are the fees? 

• Asset-based fees range from 0.18% to 0.82% in Indiana, depending on the investment option selected.
• For non-Indiana residents, or accounts under $25,000, an additional account maintenance fee of $20 is charged annually.
• There are no commissions, loads, or sales fees affiliated with the Direct plan.

How can I make contributions to a plan? 

• There are several ways:
  • Send a check to CollegeChoice 529 Direct Savings Plan
  • Transfer funds on demand from your bank
  • Set up a recurring contribution from your bank
  • Have money deducted from your paycheck (participating employers only)
  • Rollover of another 529 plan or ESA (not eligible for tax credit)
  • Transfer a UGMA/UTMA (not eligible for tax credit)
• An account must be initially funded with at least $10. Subsequent contributions must also be $10 or more.
• In the state of Indiana, you’re able to contribute $450,000 per beneficiary for accounts in all 529 plans sponsored by the State of Indiana.
• Keep in mind, if you close the account within 12 months of funding it or roll it over to another state’s plan the state can recapture the tax credits you have earned (meaning you’ll have to pay that amount).

Can I start one for someone who isn’t my child? 

• Yes. You can open a CollegeChoice 529 account for anyone: relatives, friends, children, adults, or even yourself.
• You can also contribute to an existing plan that you are not the owner of, and you are eligible for a tax credit. For example, grandparents can contribute to accounts owned by their children for their grandchildren and receive the tax credit.
• The account owner will have control over the account, regardless of who contributes.

What is considered a qualified expense? 

• Qualified withdrawals for higher education expenses will generally not be assessed taxes or a penalty.
• This includes tuition, mandatory fees, books, supplies, any equipment required for enrollment or attendance, certain room and board expenses as long as the student is enrolled half-time, and certain expenses for special needs students.
• In 2019, the SECURE Act expanded the definition of a qualified expense to include (fees, books, supplies and equipment) for Apprenticeships Programs provided the program is appropriately registered and certified with the Department of Labor.
• The SECURE Act also introduced distributions for Qualified Education Loan Repayments. Such distributions may be used to pay the principal and/or interest of qualified education loans limited to a lifetime amount of $10,000. The $10,000 lifetime limit is a per-person limit. An additional $10,000 may also be distributed as a qualified education loan repayment to satisfy outstanding student debt for each of the 529 plan beneficiary’s siblings.
• You have the ability to reimburse yourself for qualified expenses from your 529 plan after you’ve paid for them out of pocket, as long as you withdraw from the 529 plan in the same calendar year.

What happens if I need to take money out for other reasons? 

• Money withdrawn for other reasons than those specified above will be subject to a 10% penalty on earnings of your contributions, plus income tax.
• You can withdraw your contributions at any time without being subject to the 10% penalty.
• Additionally, non-qualified withdrawals of any kind will be subject to state tax credit recapture, meaning you’ll owe the state for those tax credits you previously earned.

What if the beneficiary doesn’t go to college or doesn’t use the money? 

• You have several options if the beneficiary does not use the money:
• Leave the money invested in the plan. There is no time limit, so if the beneficiary decides to go to college later, it can still be used.
• Change the beneficiary. This can be done at any time, but the new beneficiary has to be a member of the same family as the previous beneficiary. Same family includes child or step-child, sibling, step-sibling or half-sibling, parent or step-parent, grandparent, grandchild, niece or nephew, aunt or uncle, first cousin, mother- or father-in-law, son or daughter-in-law, brother- or sister-in-law, and spouse of any individual listed (except first cousin).
• Withdraw the money for other uses. This can also be done at any time, but keep in mind there is a 10% penalty on the growth in your account, plus income taxes will be owed, and your previously earned tax credits are subject to be recaptured by the state.
• Starting in 2024, beneficiaries will have the ability to roll over unused 529 funds into a Roth IRA with no penalty.
  • However, a maximum of $35,000 can be rolled into the Roth IRA per beneficiary, per lifetime.
  • Rollovers are not allowed until the 529 account has been open for at least 15 years with the same beneficiary.
  • Funds you convert from 529 plans to Roth IRA’s must have been in the account for at least 5 years.

Does money in a 529 plan count against federal aid? 

• 529 accounts are reported on the FAFSA each year and do have an effect on financial aid.
• In general, a maximum of 5.64% of the assets in the account will be used in calculating the Expected Family Contribution on the FAFSA.
  • For example, if you have $25,000 of assets, federal aid eligibility may decrease by $1,140 ($25,000*5.64%) in that year.
  • One perk is withdrawals from 529 plans owned by parents of the beneficiary do not factor into the income equation for the following year, so withdrawing a large sum this year won’t affect your financial aid eligibility next year. This is not true if the account is owned by someone other than the parent of the beneficiary (i.e. grandparent).

Where does AMI come into play?

• AMI is proud to help our clients with CollegeChoice 529 Direct accounts.
• We do not charge a fee; rather, we offer this as a service to our clients.
• We can assist in all aspects of 529 plans, whether it is opening and transferring accounts, setting up contributions, choosing an investment portfolio, taking withdrawals, and more.
• If you plan on providing money for a beneficiary’s college expenses in the future and don’t yet have a plan, or have questions about your existing plan, please contact the investment professionals at AMI today.

Past performance is no guarantee of future performance. All investments contain risk and may lose value. Any views expressed within this document are the views of AMI Investment Management and/or the authors. They are subject to change at any time without notice. Any graphs, charts or formulas included within this document that depict historical relationships may not be valid during future periods and should not be relied upon to make investment decisions. This material is distributed for informational purposes only and should not be considered as investment advice or as a recommendation of any particular investment security, strategy or investment product.