What is a Section 529 Plan?

A Section 529 Plan, officially titled a "Qualified State Tuition Program," is found in section 529 of the Internal Revenue Code, hence the name "Section 529 Plan." It is an education savings plan designed to help families set aside funds for future college costs. The money invested and subsequent earnings will not be subject to federal income taxes if the money is used for qualified educational expenses. ¹

Why Consider a Section 529 Plan?
Section 529 College Savings Plans are a great way for many families to save for college ... they're easy, affordable and flexible. With the cost of college continuing to grow faster than the rate of inflation, saving for a child's education is a major concern for most parents. Farm Bureau Financial Services is uniquely positioned to help parents and relatives invest and distribute money to help meet the challenge of increasing college tuition and fees.

What are Qualified Expenses?
Qualified expenses include education expenses for any accredited college, university, vocational school or other post-secondary educational institution – including all accredited public, nonprofit and privately owned post-secondary institutions. Expenses may include tuition, fees, room and board (must be enrolled at least half time), books, supplies and other equipment required for enrollment or attendance.

What Two Types of Section 529 Plans are Available?
These two types are referred to as Section 529 Plans, but there is a significant difference between them.

Prepaid Tuition Plan – Prepaid tuition plans let you lock in future tuition rates at in-state public colleges at current prices and are usually guaranteed by the state. For example, if a family purchases shares worth half a year’s tuition at a state college, these shares will always be worth half a year’s tuition, even 10 years later when tuition rates may be significantly higher. (Currently, prepaid tuition plans are only operated by state governments.) College Savings Plan – Unlike prepaid tuition plans, there is no lock on tuition rates and no guarantees. However, college savings plans are more flexible. (The following information explains some of the features of the College Savings Plan.) Your Farm Bureau representative can also provide more information on the College Savings Plan.

What are Some Features of a Section 529 College Savings Plan?

The plan offers tax-deferred growth and tax-free withdrawals. The savings and accumulated earnings are exempt from federal income tax if the distributions are used for qualified higher education expenses. Withdrawals from a Section 529 College Savings Plan can be used to pay for qualified higher education expenses. The owner has complete control of the values in the Section 529 College Savings Plan. With few exceptions, the named beneficiary has no rights to the funds. The owner may change beneficiaries as often as he/she wishes. If the new beneficiary is not a family member of the original beneficiary, the change will be treated as a non-qualified distribution from the plan. A family member is defined as almost any family member as distant as first cousin. Once you enroll in the Section 529 College Savings Plan, you can make your contribution (or sign up for automatic deposits) and relax. Professional fund managers handle the investment of your account. If you wish to move your investment around, there are options available. Check with your Farm Bureau agent for details. A state income-tax deduction for contributions to the plan made by state residents may be allowed. Typically, this tax deduction is not available for a contribution made to a Section 529 College Savings Plan by a non-resident or if an out-of-state plan is selected. Check with your Farm Bureau agent or tax adviser. Anyone can take advantage of a Section 529 Plan. Generally, there are no income limitations or age restrictions.

Will a Section 529 College Savings Plan Impact a Child’s Chances to Qualify for Financial Aid?

It will have a low impact on financial aid eligibility. As directed from the U.S. Department of Education, your Section 529 College Savings Plan is treated as an asset of the parent or other account owner, not the student, in determining eligibility for federal financial aid.

What if the Child Doesn’t Need All of the Money in the Section 529 College Savings Plan?
If the child does not pursue a post-secondary education, you may:

Choose to hold the Section 529 College Savings Plan account until a later date when the child may decide to attend college (as long as the child is younger than age 30.) Transfer the account to another member of the child’s family. Request the account be refunded according to the policy of your specific Section 529 College Savings Plan. Federal law imposes a 10 percent penalty on earnings (not on principal) for non-qualified distributions, except in the case of the child’s death, disability or receipt of a scholarship.

Who are the Managing Fund Families?

The following well-respected mutual fund families manage your investment in a Section 529 College Savings Plan. Discuss your options with a Farm Bureau representative.

American Funds ® Fidelity Advisor Funds

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1	The current tax law regarding the tax-free treatment of qualified distributions will expire on December 31, 2010, unless Congress extends the current tax law. Neither the company, nor its agents give tax, accounting or legal advice. Please consult your professional adviser in these areas.