What Is a 529 Plan?

Overview

A 529 plan is a college savings plan sponsored by a state or state agency.

Savings can be used for tuition, books, and other education-related expenses at most accredited two- and four-year colleges and universities, U.S. vocational-technical schools, and eligible foreign institutions.

U.S. residents of any state, who are 18 years of age or older (or the age of majority in some states), may invest in most state plans.

Tax advantages

Any earnings grow federal income tax deferred and may also be eligible for state tax deductions.

Distributions for qualified higher education expenses are federal income tax free.

Investment options

The 529 plans managed by Fidelity offer a choice of investment options.

• The Age-Based Strategy invests in portfolios that automatically become more conservative as the beneficiary nears college age. Fidelity offers three types: Fidelity Funds, Fidelity Index, or Multi-Firm.
• The Custom Strategy allows you to allocate your assets among Static, Individual Fund, Age-Based, and Bank Deposit portfolios.

Learn more about investment options.

Who can open a 529 plan?

People of all income levels; there are no income restrictions.

Any U.S. resident who is 18 years or older, has a U.S. mailing and legal address, and a Social Security number or Tax ID

Who can be a beneficiary?

Anyone who has a Social Security number or Tax ID

A future college student of any age—the beneficiary can even be the same person who sets up the account.

Investing by grandparents and others

Grandparents or others who wish to contribute to a child’s college savings plan may want to open a 529 plan account.

The owner of the account, also known as the participant, controls the account, including investment decisions and the distribution of assets.

The account owner can take advantage of possible gift and estate tax benefits.

Grandparents, other relatives, or nonrelatives can contribute to an existing account as long as they have the account number.

Gift and estate planning benefits

Contribute up to $70,000 ($140,000 per married couple) per beneficiary in a single year without the money being subject to the federal gift tax.*

Once assets are in the account, they are generally considered to be no longer part of the account owner’s estate.

Professional money management

Investors in Fidelity-managed 529 plans may benefit from Fidelity’s professional money management.

Depending on your investment choice, 529 portfolio assets may be invested entirely in Fidelity mutual funds, an interest-bearing bank deposit portfolio, or in funds managed by several different companies, including Fidelity.

Control of assets and distributions

The account owner maintains ownership of the account until the money is withdrawn.

Withdrawals from a 529 account can be taken at any time for any reason. However, if the money is not used for qualified higher education expenses, any earnings are subject to federal income taxes at the recipient’s rate. A 10% federal penalty tax and possibly state or local tax are also added.

If the beneficiary receives a scholarship or attends a U.S. military academy, the scholarship amount or cost of attendance can be withdrawn from the 529 plan account and the 10% federal penalty tax does not apply. However, the earnings are subject to any other applicable taxes, including federal income tax.