Order Code RL31214
CRS Report for Congress
Received through the CRS Web
Saving for College through Qualified
Tuition (Section 529) Programs
Updated October 19, 2004
Linda Levine
Specialist in Labor Economics
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Saving for College through Qualified Tuition
(Section 529) Programs
Summary
Congress has tried to make higher education more affordable by providing
favorable tax treatment to savings accumulated in qualified tuition programs (QTPs),
also known as Section 529 programs. QTPs initially allowed individuals to save for
qualified higher education expenses (QHEEs) at eligible institutions on a tax-deferred
basis. With passage of P.L. 107-16, the benefit was enhanced temporarily by making
qualified withdrawals from Section 529 programs tax free.
One type of QTP, prepaid tuition plans, enables account owners to make
payments on behalf of student beneficiaries for a specified number of academic
periods/course units at current prices thereby providing a hedge against tuition
inflation. Only states were permitted to sponsor prepaid plans until P.L. 107-16
extended sponsorship to eligible higher education (private) institutions effective in
2002. Due to the impact of the 2001 recession on state government support for
higher education and of the stock market downturn on plan performance, some state-
sponsored prepaid plans have been modified or closed.
States remain the sole sponsor of the more popular type of Section 529 program,
college savings plans, which account for some 80% of the more than $51 billion in
QTPs as of March 2004. College savings plans can be used toward a variety of
QHEEs at any eligible institution regardless of which state sponsors the plan or
where the beneficiary attends school. In contrast, if beneficiaries of state-sponsored
prepaid plans attend out-of-state or private schools, the programs typically pay the
same tuition that would have been paid to an eligible in-state public school. Also
unlike prepaid plans, in which the state plan invests the pooled contributions with the
intent of at least matching tuition inflation, college savings account owners can select
from a range of investment portfolios. College savings plans thus offer the chance
of greater returns than prepaid plans, but they also could prove more risky.
Additionally, college savings plans charge fees (e.g., enrollment fees and underlying
mutual fund fees) that lower returns — more so for accounts opened through
investment advisors (e.g., sales charges). The level of these fees vis-a-vis the tax
savings, the extent and manner of disclosure across plans, and the role of federal
regulators was the subject of oversight during the 108th Congress.
Both types of Section 529 programs have several features in common in
addition to the above-mentioned federal tax treatment of qualified withdrawals.
Account owners, rather than beneficiaries, maintain control over the funds.
Contributions are not deductible on federal tax returns. A special gifting provision
also allows a contributor to make five years worth of tax-free gifts in one year to a
QTP beneficiary’s account. Withdrawals used toward QHEEs must be coordinated
with other higher education tax benefits. Assets in and income from QTPs may
affect a student’s eligibility for federal need-based financial aid. Earnings not
applied toward QHEEs (e.g., the beneficiary forgoes college) generally are taxable
and subject to a penalty. The tax and penalty can be avoided if account owners
designate a new beneficiary who is a relative of the original beneficiary. This report
will be updated as warranted.

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Contents
What Is a Section 529 Program? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prepaid Tuition Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
State-Sponsored Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Plans of Eligible Institutions of Higher Education . . . . . . . . . . . . . . . . 3
College Savings Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Current Issues by Type of Section 529 Program . . . . . . . . . . . . . . . . . . . . . . 5
College Savings Plans: Fees and Disclosure . . . . . . . . . . . . . . . . . . . . . 5
Prepaid Tuition Plans: Closures and Modifications . . . . . . . . . . . . . . . 8
Tax Treatment of QTP Contributions and Earnings . . . . . . . . . . . . . . . . . . . . . . . 9
Qualified Earnings Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Control and the Tax Consequences of Transferring Funds
between Section 529 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Changing Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Same-Beneficiary Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Coordination of Contributions with Estate, Gift, and Generation-Skipping
Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interaction with Other Higher Education Tax Incentives . . . . . . . . . . . . . . . . . . 13
The Relationship between QTPs and Student Financial Aid . . . . . . . . . . . . . . . . 14
Closing Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Tables
Appendix Table 1. Comparison of State-Sponsored Prepaid Tuition Plans . . . . 18
Appendix Table 2. Comparison of State-Sponsored College Savings Plans . . . 24

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Saving for College through
Qualified Tuition (Section 529) Programs
Since the late 1980s, an oft-voiced concern has been that the nation’s
educational and training institutions may not be supplying enough persons with the
reportedly heightened skill levels demanded by businesses. Indeed, the demand for
workers with at least some postsecondary education has been growing and is
projected to continue growing at a more rapid rate than the demand for individuals
with, at most, a high school degree.1
At the same time, the cost of higher education has risen to a greater extent than
average household income over the past 2 decades.2 The trend has caused concern
among Members of Congress that higher education is becoming less affordable for
middle-income families.
In response to these trends, Congress has added a panoply of tax benefits to
supplement the traditional student financial aid system with the intention of
encouraging human capital development by increasing the affordability of
postsecondary school attendance. Among the tax incentives to promote higher
education is the qualified tuition program (QTP) or Section 529 program, named for
its place in the Internal Revenue Code (IRC). It provides favorable tax treatment to
money accumulated for future payment of qualified higher education expenses.
Although more states sponsored QTPs after the Small Business Job Protection
Act of 1996 (P.L. 104-188) clarified their federal tax status, the recent amendment
of Section 529 by the Economic Growth and Tax Relief Reconciliation Act of 2001
(P.L. 107-16) greatly increased the program’s attractiveness. Earnings on
contributions to QTPs had been allowed to grow on a tax-deferred basis, but they
were subject to taxation upon withdrawal. P.L. 107-16 made withdrawals from QTPs
to pay qualified higher education expenses tax free. In order to comply with the
Congressional Budget Act of 1974, however, P.L. 107-16’s amendments to Section
529 and many other provisions in the IRC sunset for tax years beginning after
December 31, 2010.3 The sunset provision introduces an element of uncertainty for
individuals considering whether to contribute to QTPs on behalf of persons who will
be attending postsecondary institutions in 2011 or thereafter.
1 See, for example, CRS Report 97-764, The Skill (Education) Distribution of Jobs: How
Is It Changing? by Linda Levine.
2 For more information, see CRS Report RL32100, College Costs and Prices: Background
and Issues for Reauthorization of the Higher Education Act, by Rebecca R. Skinner.
3 For additional information, see CRS Report RS21870, Education Tax Benefits: Are They
Permanent or Temporary? by Linda Levine.

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CRS-2
As Section 529 will revert to its pre-P.L. 107-16 version in tax years starting on
or after January 1, 2011, absent congressional action, this report provides an
overview of Section 529 that covers its pre- and post-P.L. 107-16 provisions. It also
addresses issues of current concern associated with QTPs (e.g., fees of college
savings accounts imposed by the state plan sponsors, mutual fund companies, and
brokers/financial advisors). The report discusses the interaction of QTPs with other
tax incentives for postsecondary education and with the traditional federal need-
based student aid system, as well. The Appendix Tables 1 and 2 summarize Section
529 prepaid tuition and college savings plans by state, respectively.
What Is a Section 529 Program?
States, their agencies or instrumentalities can establish and maintain tax-exempt
programs
(1) that permit individuals to purchase tuition credits or certificates for use at
eligible institutions of higher education4 on behalf of a designated beneficiary
which entitles the beneficiary to the waiver or payment of qualified higher
education expenses; or
(2) that permit individuals to contribute to an account for the purpose of paying
a beneficiary’s qualified higher education expenses (QHEEs).5
In addition to states, eligible institutions of higher education can now offer the
first type of QTP, commonly called prepaid tuition plans. States remain the sole tax-
exempt sponsors of college savings plans, which is the name commonly applied to
the second type of QTP.
According to Section 529 of the IRC, payments to both types of QTPs must be
in cash (e.g., not in the form of securities). A contributor may establish multiple
accounts for the same beneficiary, and an individual may be a designated beneficiary
of multiple accounts (e.g., an account in a college saving plan sponsored by state A
and another in state B originated by a parent for child X or an account in a prepaid
tuition plan sponsored by state C that is originated by a parent for child Y and an
account in a college savings plan sponsored by state D that is originated by a
4 Eligible institutions of higher education generally are those accredited public and private
non-profit postsecondary schools that offer a bachelor’s, associate’s, graduate or
professional degree, or another recognized postsecondary credential as well as certain
proprietary and vocational schools. The institutions also must be eligible to participate in
student aid programs of the U.S. Department of Education.
5 QHEEs are tuition, fees, books, supplies and equipment required for enrollment or
attendance at an eligible institution as well as room and board for students attending school
at least half-time. Note: P.L. 107-16 further expanded the definition of qualified expenses
to cover the cost of special needs services for special needs beneficiaries. The legislation
also raised the potential level of room and board expenses for students who attend eligible
institutions at least half-time, thus enabling QTPs to pay for more of this qualified expense.
Both these expansions are effective in tax year beginning after Dec. 31, 2001.

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CRS-3
grandparent of child Y). But, states may establish restrictions that are not mandated
either by Section 529 or by the proposed regulations issued in 1998. There generally
are no income caps on contributors, unlike the limits that apply to taxpayers who
want to claim Hope Scholarship and Lifetime Learning tax credits, or who want to
use Coverdell Education Savings Accounts. The absence of an income limit on
contributors likely makes Section 529 programs particularly attractive to higher
income families, who also are likely to make above-average use of the savings plans
because persons with more income have a greater propensity to save.6
Prepaid Tuition Plans
A prepaid tuition plan enables a contributor (e.g., parent, grandparent, and
interested non-relative) to make lump-sum or periodic payments for a specified
number of academic periods or course units at current prices. Prepaid tuition
programs thus provide a hedge against tuition inflation.
State-Sponsored Plans. More than 20 states sponsor the plans, according
to the College Savings Plan Network (CSPN), which is an affiliate of the National
Association of State Treasurers. As of March 31, 2004, prepaid tuition plans held a
little over $9 billion in contributions and earnings.
If the beneficiary of a state-sponsored prepaid tuition contract (e.g., child,
grandchild or someone not related to the contributor) elects to attend an in-state
private college or an out-of-state college, the program typically will pay the student’s
chosen institution the tuition it would have paid an in-state public college — which
may be less than the chosen institution’s tuition. The specifics of prepaid tuition
plans vary greatly from one state to another (e.g., as to a residency requirement, age
limitation on beneficiaries, minimum and maximum contributions, refund policies,
and state guarantee of rate of return and principal). Some plans reportedly have
begun to cover room and board as well as tuition and related expenses.7 (See
Appendix Table 1 for a summary of the specific elements of state-sponsored prepaid
tuition programs, including how the different programs calculate the value of a
contract if a beneficiary attends a private institution or an out-of-state public
institution.)
Plans of Eligible Institutions of Higher Education. Effective for tax
years beginning after December 31, 2001 and before January 1, 2011, P.L. 107-16
declared that one or more eligible higher education institutions — including private
institutions — may establish and maintain prepaid tuition programs accorded the
same federal tax treatment as state-sponsored prepaid tuition plans. Some believe the
expansion of the plans to include private institutions might help them recruit students
who would otherwise have been deterred from attending due to comparatively high
tuition charges. It also has been suggested that the plans of private institutions might
6 For information on the characteristics of contributors to Section 529 programs, see
Investment Company Institute, Profile of Households Saving for College, fall 2003.
(Hereafter cited as Investment Company Institute, Profile of Households Saving for
College.)
7 Anne Tergesen, “Pay Now, Study Later,” Business Week, Mar. 11, 2002.

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appeal to alumni who could “boast they’ve not only enrolled their [offspring] in their
alma mater at birth, [but] they’ve already paid the tuition.”8
In early 2003, the not-for-profit Tuition Plan Consortium received regulatory
approval to sell “tuition certificates” in its Independent 529 Plan. Over 290 colleges
and universities in the consortium, ranging from Ivy League to small liberal arts
colleges, have agreed to participate in the plan. A certificate prepays a share of a
beneficiary’s tuition, with the value of the share at a particular institution depending
upon its tuition level (e.g., if, in the year a certificate in the amount of $10,000 would
pay for one-half of the annual tuition and mandatory fees at College X or one-third
of the annual tuition and fees at University Y, then the certificate will be worth that
same fraction regardless of a school’s tuition level at the time of enrollment).
Beneficiaries do not commit to attending specific institutions at the time of pre-
payment, and they may use the certificates at any participating school. Each year,
participating institutions will set a discount from its current tuition and fees for
purchasers of certificates, with the plan setting a minimum discount rate. A
certificate cannot be used toward tuition and fees until three years from the date of
purchase, and it generally will expire upon the 30th anniversary of its purchase.
Unless at least $500 is contributed by the end of the first two years after having
purchased a certificate, the plan will cancel the certificate and refund contributions
without interest. The value of a certificate, adjusted for the plan’s investment
performance plus nominal amount of interest, cannot be refunded until one year from
the date of purchase or upon the death of the designated beneficiary.9 The
Consortium began accepting contributions in fall 2003.10
College Savings Plans
State-sponsored college savings plans typically offer several predetermined
investment options from which contributors can select (e.g., a portfolio of equities
and bonds whose percent composition changes automatically as the beneficiary ages,
a portfolio with fixed shares of equities and bonds, or with a guaranteed minimum
rate of return). Unlike with prepaid tuition plans, the value of each savings account
is based on the performance of the investment strategy chosen by the account owner.
A number of explanations have been offered for the proliferation and popularity
of this newer type of QTP. It has been suggested that state officials regard college
savings plans as a way to offer people a benefit with little cost to the state. In
contrast, if a state guarantees its prepaid tuition plan, it assumes the risk that earnings
8 Jeff Wuorio, Prepaying Tuition Offers Peace of Mind at a Price, available at
[http://moneycentral.msn.com/articles/family/college/1462.asp].
9 Description of the Independent 529 Plan submitted to the Securities and Exchange
Commission. Available at [http://www.sec.gov/divisions/investment/noaction/
tuitionplan020403.htm].
10 See [http://www.Independent529plan.org] for additional information.

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CRS-5
on the plan’s pooled contributions will not match tuition inflation, in which case, the
state must use other resources to satisfy the plan’s obligations.11
Another reason put forth, this time from the contributors’ perspective, is that the
funds in a college savings plan can be used toward the full range of QHEEs at any
eligible institution, regardless of which state sponsors the plan or where the
contributor resides. In addition, some of the investment options of college savings
plans offer account owners the possibility of greater returns than produced by the
usually conservative investment strategy of prepaid tuition programs. Further,
college savings plans have become increasingly popular as an employee benefit.
Typically, the employer contracts with a mutual fund company and employees’
voluntary contributions are deducted from their paychecks.12 A few credit card
companies also rebate a percentage of purchases made by cardholders. Accumulated
rebates periodically are transferred into particular college savings plans.13
In part for these reasons, all 50 states and the District of Columbia offer college
savings programs. Of the more than $51 billion in assets in Section 529 plans as of
March 31, 2004, according to CSPN, some 80% (or $41.9 billion) was held in college
savings accounts. (See Appendix Table 2 for a summary of college savings plans
by state.)
Current Issues by Type of Section 529 Program
College Savings Plans: Fees and Disclosure. States generally have
turned to financial services companies (e.g., the Vanguard Group, TIAA-CREF,
Fidelity Investments, and Merrill Lynch) to manage their college savings plans.
These firms charge account owners fees that are in addition to those states typically
impose (e.g., enrollment fee, annual account maintenance fee, and administrative
fee). The investment company fees, which reduce returns, generally are calculated
as percentages of the assets in the basket of mutual funds that can comprise one
investment option in a college savings plan.14 (Appendix Table 2 includes estimates
of average annual expenses for direct-sold plans.) Reportedly, “expenses are higher
in most 529 plans than in equivalent mutual funds ... [e]ven among plans that aren’t
sold by brokers (and thus don’t have high upfront loads or annual sales fees).”15
11 Andrew P. Roth, “Who Benefits from States’ College-Savings Plans?” Chronicle of
Higher Education, Jan. 1, 2001.
12 Lauren Paetsch, “Section 529 College Savings Plans More Attractive Due to 2001 Tax
Law,” Employee Benefit Plan Review, Feb. 2002.
13 Brian Hindo, “Shop Your Way to College Savings,” Business Week, Mar. 11, 2002; and
Kristin Davis, “College: We Did Your Homework to Find the Best Way to Save for College,
Circa 2004,” Kiplinger’s Your Money, May 2004. (Hereafter cited as Davis, College: We
Did Your Homework.)
14 Morningstar testimony before the Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises, House Committee on Financial Services, June 2, 2004.
(Hereafter cited as Morningstar testimony.)
15 Davis, College: We Did Your Homework, p. 72.

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CRS-6
Perhaps in response to the plethora of college savings plans and to the
multiplicity of each plan’s investment choices, contributors appear to have increased
their use of commissioned brokers and financial advisors.16 These intermediaries are
the most frequently mentioned source of plan information among persons who have
established college savings accounts.17 Additionally, as shown in Appendix Table
2, some plans require residents of other states to buy their plans through brokers or
financial advisors. Almost two-thirds of college savings plans were sold by these
intermediaries in 2003, with three-fourths of new accounts coming from this source.18
Individuals who purchase college savings plans through brokers and financial
advisors incur sales charges of up to 5.75% of account assets in addition to the fees
imposed by the state plans and fund companies.19
Some Members of Congress have become concerned about such things as the
overall level of fees and the extent to which they offset the value of the tax benefit,
the lack of uniform disclosure across plans that impedes savers from making
informed decisions, and about what group(s) has regulatory authority. In its March
2004 response to a letter from House Committee on Financial Services Chairman
Oxley, the Securities and Exchange Commission (SEC) explained that the plans
generally are not regulated under federal securities laws as they are considered
instrumentalities of their respective states.20 As a result, those who enroll in 529
savings plans are not required to be provided the same quality of information as other
mutual fund investors. Similarly, the SEC stated that investors in the state-sponsored
plans do not have to get the same periodic reporting as other mutual fund investors
and that 529 investors encounter difficulty making comparisons across plans because
of the lack of standardized disclosure (e.g., some plans report returns before fees are
deducted while others report results after fees have been subtracted). The SEC went
on to note, however, that the investment companies state-sponsored plans hire to
manage assets or provide advice as well as the broker-dealers and municipal
securities dealers that sell shares in the plans are governed by applicable federal
securities laws (e.g., anti-fraud provisions) and rules of the Municipal Securities
Rulemaking Board (MSRB) and the NASD. SEC Chairman Donaldson consequently
created a Task Force on College Savings Plans in March 2004 to examine issues
raised by the structure and sale of college savings plans. In addition, the NASD,
which enforces its own rules for member companies as well as those of the MSRB,
is investigating the largest sellers of college savings plans reportedly because they
have been selling a lot of out-of-state plans to clients perhaps without informing them
16 Lynn O’Shaughnessy, “Avoiding Fee Pitfalls as College Savings Climb,” New York
Times, July 13, 2003.
17 Investment Company Institute, Profile of Households Saving for College.
18 Howard Isenstein, “As College Plans Proliferate, It Pays to Shop Around,” New York
Times, June 20, 2004.
19 Morningstar testimony.
20 [http://financialservices.house.gov/media/pdf/3-16-04%20529%20lttr%20part%20two
_001.pdf].

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CRS-7
of the tax benefits they could have obtained through home-state plans and for whose
sale they would not have earned commissions.21
On June 2, 2004, the House Committee on Financial Services’ Subcommittee
on Capital Markets, Insurance and Government Spending held a hearing on these
matters. The complexity of the college savings plans’ fee structure and the lack of
standardized disclosure were frequently raised by those who testified. One individual
emphasized the particular importance of disclosure for 529 plan investors because
they might think that state plan sponsorship would mean provision of “a high-quality,
low-cost investment product. In fact, states’ interests may not be aligned with plan
participants’ interests.”22 The Chair of the College Savings Plan Network testified
that the group had approved a draft of voluntary disclosure principles at its annual
meeting in late May 2004.23 CSPN provided a copy of the approved draft to the SEC
in advance of a meeting with Chairman Donaldson in late June 2004.
The Senate Committee on Governmental Affairs’ Subcommittee on Financial
Management, the Budget, and International Security held oversight hearings on
college savings on September 30, 2004. NASD Vice Chairman and President of
Regulatory Policy and Oversight Mary Schapiro testified about the application of
advertising rules to the marketing of investments that underlie college savings plans:
broker-dealers have been made to correct sales material they are required to file with
the self-regulatory body. She also addressed the fact that some states accord
preferential tax treatment to residents’ contributions to in-state college savings plans
and that an MSRB rule states that broker-dealers “have reasonable grounds...for
believing that the [investment] recommendation is suitable [to the customer].” A
2003 NASD investigation of the sales practices of six firms found, however, that
most sold over 95% “of the dollar value of 529 plan investments to non-residents of
the state that sponsored the plan.”24 Upon expanding the investigation to additional
firms in May 2004 and finding that “the vast majority of sales were made to residents
outside of the state that sponsored the 529 plan,” Schapiro reported that the NASD
issued an Investor Alert. She went on to describe information on its website intended
to educate both broker-dealers and investors on college savings plans.25
21 Kristin French, “SEC and NASD Are Examining 529s — Update,” Mar. 18, 2004; Brooke
A. Masters, “College Savings Get Closer Study,” Washington Post, Apr. 14, 2004; and Rick
Miller, “529s Place Some Reps in a Quandary,” Investment News, Apr. 5, 2004.
22 Testimony of Mercer E. Bullard of Fund Democracy Inc. and Professor of Law before the
Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises,
House Committee on Financial Services, June 2, 2004, p. 12.
23 Work on the guidelines began in 2003. Those who developed the draft met with the SEC
in April 2004 and also obtained input from such private sector groups as the Securities
Industry Association, which testified at the hearing as well.
24 Testimony of Mary L. Schapiro, NASD, before the Subcommittee on Financial
Management, the Budget, and International Security, Senate Committee on Governmental
Affairs, Sept. 30, 2004, p. 6.
25 [http://www.nasd.com].

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At the same hearing, testimony also was given by another representative from
a self-regulatory body — Ernesto Lanza, Senior Associate General Counsel, MSRB.
He described the applicability to broker-dealers in the municipal securities market
who sell 529 plans of various MSRB regulations and referenced proposed SEC rules
that would supplement existing MSRB requirements concerning point-of-sale
disclosure as well as confirmation disclosure of sales charges. Lanza discussed a set
of draft amendments that the MSRB proposed in June 2004 concerning its
advertising rule, which “commentators generally agree ... will substantially improve
the quality and comparability of performance data, allowing investors to compare 529
college savings plans against one another and against mutual funds and other forms
of investment.”26 The MSRB is expected to act on the proposal in November.
Additionally, according to the MSRB, how well the CSPN’s voluntary disclosure
principles will improve the current situation depends “upon whether it can achieve
universal compliance by all state plans and whether the state plans will view the
principles as a baseline on which to add further and better disclosure rather than a
target that need not be surpassed.” (One of the several representatives of state-
sponsored plans testified at the hearing that 21 states had begun to implement the
principles as of September 30, 2004.)27
Prepaid Tuition Plans: Closures and Modifications. Due to the impact
of the 2001 recession on state government support for higher education and of the
coincident downturn in the stock market on plan performance, some state-sponsored
prepaid plans have been modified or closed. As a result of unanticipatedly large
increases in tuition,
Many [plans] are reporting “actuarial deficits” in the millions to tens of millions
of dollars, meaning the plans’ assets are currently less than future tuition
obligations ... There is a major difference between having an actuarial deficit and
a cash-flow issue, [however] ... New participants will continue to join the
program[s], current account holders will continue adding to their accounts, and
program investments will have time to rebound.28
In addition, current participants in state-sponsored plans that offer a tuition contract
for which they paid in full or for which they agreed to make payments over time are
unlikely to be affected by rising tuition prices.
Nonetheless, a number of states have taken preemptive measures. For example,
Colorado’s prepaid tuition plan is closed to new participants and contributions are
26 Testimony of Ernesto A. Lanza, MSRB, before the Subcommittee on Financial
Management, the Budget, and International Security, Senate Committee on Governmental
Affairs, Sept. 30, 2004, p. 21.
27 Testimony of Michael Ablowich, New Hampshire State Treasurer, before the
Subcommittee on Financial Management, the Budget, and International Security, Senate
Committee on Governmental Affairs, Sept. 30, 2004.
28 Sarah Max, “Are Prepaid Tuition Plans in Trouble?,” CNN Money, Jan. 10, 2003.
Available at [http://money.cnn.com/2003/01/07/pf/college/prepaid/index.htm]. See also
Peter Schmidt, “Prepaid-Tuition Plans Feel the Pinch,” Chronicle of Higher Education,
Sept. 12, 2003.

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not being accepted from existing participants who have been told that future tuition
increases might not be fully covered. Ohio also has closed its plan to new
participants. Virginia has, for the moment, stopped taking new enrollments; when
new enrollments are again accepted, contract prices very likely will be higher. Other
plans have greatly increased the value of tuition units (e.g., Maryland has raised
contract prices 25% in each of the past two years and is expecting another increase
of 10% in the enrollment period that will occur before the end of 2004.)29
Tax Treatment of QTP Contributions and Earnings
There is no federal income tax deduction for contributions to QTPs. About 26
states and the District of Columbia allow residents who participate in their own
state’s plan to claim a partial or total state income tax deduction on contributions.30
Numerous financial services firms that manage Section 529 plans formed the College
Savings Foundation in 2003 to, among other things, encourage all states to allow the
deductibility of contributions of their residents to any state’s plan.31
Earnings on contributions to Section 529 plans accumulate tax-deferred until
withdrawn. The deferral confers greater benefits on families with relatively high
incomes because of their higher marginal tax rates. Simulations that compared
potential after-tax accumulations in a college savings plan to those in mutual funds
employing the same asset allocation strategies generally found that the higher a
household’s tax bracket, the greater the advantage of saving through a Section 529
plan.32 The study concluded that other factors substantially affect the level of
accumulations as well. These factors are the investment expenses that alternative
savings vehicles charge and the value of a state income tax deduction, if any, on
contributions to a QTP. A subsequent analysis, which took into account reductions
in capital gains and dividend tax rates, generally found that Section 529 plans
remained a superior investment option.33
Qualified Earnings Distributions
Earnings withdrawn from Section 529 plans to pay QHEEs are free from federal
income tax effective in tax years starting after December 31, 2001 for state-sponsored
programs, and starting after December 31, 2003 for programs of private institutions.
29 Albert B. Crenshaw, “No Quick Fix for Section 529 Plans,” Washington Post, June 6,
2004.
30 Davis, College: We Did Your Homework.
31 Ross Tucker, “Lining Up Behind 529s,” Registered Rep, Mar. 24, 2003. Note: The group
also intends to lobby Congress to make permanent the federal tax exemption on QTP
earnings withdrawn to pay QHEEs and to allow QTP assets to be transferred more than once
a year. It also wants to become an information resource concerning QTPs.
32 Jennifer Ma and Douglas Fore, “Saving for College with 529 Plans and Other Options:
An Update,” Research Dialogue, Issue no. 70, Jan. 2002.
33 Jennifer Ma, “The Impact of the 2003 Tax Law on College Savings Options,” available
at [http://www.tiaa-crefinstitute.org/Publications/pubarts/pa073103.htm].

---

CRS-10
Until then, QTP beneficiaries continued to pay federal income tax based on annuity
taxation rules (Section 72 of the Code) for distributions of qualified earnings; the
practice conferred a considerable tax benefit on families in which the student’s tax
bracket (typically 15%) was much lower than the parents’ tax bracket. The federal
tax-exempt status of earnings withdrawals makes Section 529 plans an even more
attractive means of saving for higher education expenses: for example, a student
would pay nothing instead of incurring an $18,000 federal tax bill on $120,000 in
earnings from contributions of $80,000 to a QTP made since the child was eight
years old.34 The tax-exemption might especially benefit older students who have
relatively high incomes (e.g., a beneficiary employed full-time, or with a spouse
employed full-time, who is pursuing an advanced degree or who is taking courses to
update the skills used in his/her current occupation or to learn new skills in order to
change occupations).
As shown in the Appendix tables, the majority of states now provide residents
a tax break on qualified earnings distributions from Section 529 plans. The new
federal tax exemption likely spurred some of these states to begin to do so. If the
federal exemption sunsets after December 31, 2010, however, it could affect
continuation of the state tax break. Only a few states extend the tax exemption on
qualified earnings to residents that invest in other states’ QTPs.35
A Penalty
Plans must impose a “more than de minimis penalty” on the earnings portion of
distributions that exceed or are not used for QHEEs (e.g., the beneficiary does not
attend college). Effective for tax years beginning after December 31, 2001,
withdrawals of excess earnings continue to be taxable income to the distributee (e.g.,
account owner or beneficiary) and subject to an additional tax of 10%, absent certain
circumstances.36 The 10% tax penalty is the same as that which applies to Coverdell
education savings accounts.
Plans still may collect for themselves the penalty that prior federal law required.
However, some observers have commented that the modest revenue the penalties
have afforded states is outweighed by their administrative burden. In addition, the
practice would create a competitive disadvantage unless all states continued it.
As clarified by the Job Creation and Worker Assistance Act of 2002 (P.L. 107-
147), the new tax penalty does not apply to earnings distributions that are included
in income but used for QHEEs. For example, a withdrawal is made from a QTP in
the amount of $2,000, which is equal to a student’s QHEEs in a given year. Because
34 Joseph F. Hurley, “Planning Strategies under the Education Provisions of the New Tax
Act,” Journal of Financial Planning, Sept. 2001.
35 Carol Marie Cropper and Anne Tergesen, “College Savings Plans Come of Age,” Business
Week, Mar. 12, 2001.
36 The conditions under which an account owner is not subject to a penalty on a refund of
excess earnings are the beneficiary’s death or disability, or the beneficiary’s receipt of a
scholarship, veterans educational assistance allowance or other nontaxable payment for
educational purposes (excluding a gift or inheritance).

---

CRS-11
a higher education tax credit of $500 is claimed, the coordination rule requires that
the credit amount be subtracted from the QHEE total ($2,000 - $500 = $1,500). As
a consequence, $500 of the QTP withdrawal becomes subject to taxation but not to
the additional 10% tax penalty. (See the section below for more information on the
interaction between Section 529 plans and other higher education tax incentives.)
Effective after December 31, 2002, the 10% tax penalty also no longer applies
to withdrawals made when a beneficiary attends the U.S. Military Academy, the U.S.
Naval Academy, the U.S. Air Force Academy, the U.S. Coast Guard Academy, or the
U.S. Merchant Marine Academy. The amount of the withdrawals must be less than
the costs of advanced education in order to avoid the penalty. This amendment is a
part of the Military Family Tax Relief Act of 2003 (P.L. 108-121).
Investment Control and the Tax Consequences of
Transferring Funds between Section 529 Plans
Neither account owners nor beneficiaries are allowed to direct the investment
of contributions to, or associated earnings from, a Section 529 plan. According to
the proposed regulations published on August 24, 1998 in the Federal Register (63
F.R. 45019), contributors are permitted — at the time they establish an account —
to choose a prepaid tuition plan, a college savings program, or both; if they select the
a college savings program, they then can choose among its investment options.
The restriction on investment control had been considered a major drawback of
QTPs, but it was significantly loosened. On September 7, 2001 (Cumulative Bulletin
Notice 2001-55), the Internal Revenue Service issued a special rule that permits
contributors to college savings programs to move balances — without incurring taxes
and without changing beneficiaries — from one investment strategy to another within
the state’s offerings (e.g., into a less aggressive portfolio if market circumstances
have significantly worsened over time) once per calendar year. Account owners also
can, on a tax-free basis, move balances among a state’s investment offerings if they
change beneficiaries (e.g., into a more aggressive portfolio if the new beneficiary’s
matriculation date is later than the original beneficiary’s).
Changing Beneficiaries
Section 529 of the Code allows QTP distributions to occur without tax
consequences if the funds are transferred to the account of a new beneficiary who is
a family member of the old beneficiary. In order to receive this tax treatment, the
new beneficiary must be one of the following family members:
(1) the spouse of the designated beneficiary;
(2) a son or daughter, or their descendants;
(3) stepchildren;
(4) a brother, sister, stepbrother, or stepsister;
(5) a father or mother, or their ancestors;
(6) a stepfather or stepmother;
(7) a niece or nephew;

---

CRS-12
(8) an aunt or uncle;
(9) a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law,
or sister-in-law;
(10) the spouse of an individual referenced in (2)-(9); or
(11) any first cousin of the designated beneficiary.
First cousins are covered by the definition in tax years starting after December
31, 2001. The expansion to first cousins makes QTPs “more attractive to
grandparents [who] can transfer an account between cousins [that is, between their
grandchildren, and thereby avoid paying federal income tax and a penalty on non-
qualified distributions] if, say, the original beneficiary decides not to go to college.”37
Same-Beneficiary Rollovers
P.L. 107-16 permits tax-free transfers from one QTP to another for the same
beneficiary once in any 12-month period effective in tax years starting after
December 31, 2001.38 The report accompanying the legislation provided examples
of the amendment’s intended purpose: the same-beneficiary rollover permits
contributors to make tax-free transfers between a prepaid tuition plan and a college
savings plan offered by the same state, and between a state and a private prepaid
tuition plan.
Perhaps more importantly according to some observers, the amendment
provides an account owner with the opportunity for greater control over the
investment of his/her funds without changing beneficiaries. An account owner could,
for example, make a same-beneficiary rollover into the program of another state with
an investment strategy the contributor prefers to those offered by the original state’s
program.39
Coordination of Contributions with Estate, Gift, and
Generation-Skipping Transfer Taxes
Contributors to Section 529 plans — rather than beneficiaries — maintain
control over the accounts. In other words, contributors can change the beneficiary
or have the plan balance refunded to them. This feature has been touted as a
significant advantage of saving for college through a QTP as opposed to a custodial
account opened under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers for Minors Act (UTMA) or through a Coverdell education savings account.
37 Stephanie AuWerter, “The 529 Basics,” SmartMoney.com, June 8, 2001. Available at
[http://www.smartmoney.com/consumer/index.cfm?Story=200106083].
38 This is a per-beneficiary limit rather than a per-account limit. If more than one account
of a beneficiary is rolled over in a 12-month period, it would represent a nonqualified
distribution that is subject to taxation. Susan T. Brat, “Planning for College Using Section
529 Savings Accounts,” The Practical Tax Lawyer, winter 2002.
39 Kristin Davis, “Miracle Grow,” Kiplinger’s Personal Finance, Sept. 2001, and
[http://www.savingforcollege.com].

---

CRS-13
These savings vehicles ultimately are owned by the child. The child also can use
them for whatever purpose they chose upon gaining control of the funds.40
Nonetheless, the Taxpayer Relief Act of 1997 (P.L. 105-34) declared that
payments to Section 529 plans made after August 1997 are completed gifts of present
interest from the contributor to the beneficiary. As a result, an individual can
contribute up to $11,000 in 2004 as a tax-free gift per QTP beneficiary. (This
amount is subject to indexation.)
A special gifting provision for contributions to Section 529 plans could make
them of interest to individuals with substantial resources and to families with
children who will be attending college in the not-too-distant future. A QTP
contributor may make an excludable gift of up to $55,000 in a single year by treating
the payment as if it were made over five years. Thus, for example, each grandparent
could contribute $55,000 (for a total of $110,000) to each grandchild’s QTP in tax
year 2004, which potentially would allow more earnings to accumulate than if each
had contributed $11,000 annually through 2008. In this instance, assuming the tax-
free gift annual limit remained at $11,000 over the period, the two grandparents could
not make another excludable gift to those account beneficiaries until 2009.
By making QTP contributions completed gifts, the Taxpayer Relief Act also
generally removed the value of the payments from the contributor’s taxable estate.
An exception occurs, however, if a contributor who selected the five-year advance
exclusion option dies within the period.
Interaction with Other
Higher Education Tax Incentives
P.L. 107-16 permits contributions to a QTP and to a Coverdell Education
Savings Account in the same year for the same beneficiary, effective for tax years
starting after December 31, 2001.41 Before then, same-year contributions to a QTP
and Coverdell account on behalf of the same beneficiary were considered an excess
payment to the latter, and therefore, subject to income tax and a penalty.
P.L. 107-16 also allows Hope Scholarship and Lifetime Learning credits to be
claimed for tuition and fees in the same year that tax-free distributions are made from
40 About 32 states allow parents to fund QTPs with money from custodial accounts.
“Custodial” 529 plans retain some features of the original accounts (e.g., savings still belong
to the child, and as a student’s asset, the custodial 529 plans could have a more adverse
effect on federal financial aid than other college savings plans). There also could be tax
consequences to funding QTPs in this manner due to the requirement that QTPs accept only
cash contributions (i.e., the sale of investments in custodial accounts could produce capital
gains that would be subject to taxation). Penelope Wang, “Education: Yes, There’s Still
College,” Money, Dec. 2001; and Anne Tergesen, “What About Those Custodial
Accounts?” Business Week, Mar. 11, 2002.
41 Same-year contributions to a QTP and a Coverdell account for the same beneficiary could
have gift-tax consequences if the payment to the two savings vehicles exceeds the annual
limit on gifts in one year or 5 times the annual limit the five-year option for QTPs is utilized.

---

CRS-14
a Section 529 plan or a Coverdell account, provided that the distributions are not
used toward the same expenses for which the credits are claimed. If distributions are
taken from a Section 529 plan and a Coverdell account on behalf of the same student,
the act further requires that QHEEs remaining after reduction for the education tax
credits must be allocated between the two savings vehicles. These provisions are
effective for tax years beginning after December 31, 2001. Withdrawals from QTPs
before that date could be used to pay for the same expenses for which Hope
Scholarship or Lifetime Learning credits were claimed, but also under prior law,
those withdrawals were taxable to the beneficiary.
P.L. 107-16 initiated an above-the-line income tax deduction for tuition and
fees, effective in tax years starting after December 31, 2001 and ending before
January 1, 2006. The deduction can be taken for qualified expenses paid with
contributions portion of withdrawals from a Section 529 program.
The Relationship between QTPs and
Student Financial Aid
Saving for college, through a Section 529 plan or other vehicle, may adversely
affect eligibility for and the amount of need-based student financial aid. The degree
to which this occurs depends on the type of QTP and on a family’s financial
resources.
The “federal need analysis system” defines a student’s financial need for federal
student aid programs (other than Pell Grants) to be the gap between a school’s cost
of attendance (COA) and the student’s expected family contribution (EFC) plus other
estimated financial assistance.42 A statutory formula determines the EFC based on
data submitted by students to the U.S. Department of Education on the Free
Application for Federal Student Aid (FAFSA).
As prescribed by Section 480(j) of the Higher Education Act (as revised by the
Higher Education Amendments of 1992), the Department’s formula considers
qualified distributions from prepaid tuition plans (both contributions and earnings)
to reduce the student’s COA or as estimated financial assistance. Either treatment
of prepaid tuition plan distributions cuts the student’s financial need on a dollar-for-
dollar basis. The sharp reduction occurs regardless of who is the account owner (e.g.,
a parent, aunt or non-relative).
The Department has more latitude regarding the treatment of college savings
plans in financial need analysis. It decided that, because the account owner can
change the beneficiary or close the account at will, this type of Section 529 plan is
an asset of the parent rather than of the student. As the Department’s formula counts
a maximum of 5.64% of the account’s value toward the EFC, the treatment is more
favorable than if the account were considered a student’s asset — of which a
42 The COA includes such items as tuition and fees, room and board, books, supplies, and
living expenses. The EFC is the sum that a family can be expected to devote to higher
education expenses based on its reported financial situation.

---

CRS-15
maximum of 35% counts toward the EFC — and much more favorable than is the
case with prepaid tuition plans.
For beneficiaries of college savings plans established by someone other than
their parents, the value of the accounts is not reported on the FAFSA, and thus, does
not automatically raise the EFC. The exclusion of these assets from financial need
analysis may “make eligible for student aid those who by definition are more affluent
than others because they have more money to invest.”43
As previously discussed, private educational institutions recently were extended
the right to sponsor prepaid tuition plans. In order to “level the playing field” in
financial need analysis between prepaid tuition and college savings plans, it is
expected that these institutions among other groups will attempt to have Congress
amend the Higher Education Act which is up for reauthorization during the 108th
Congress.44

The Department’s formula applies the same share (50%) of the student’s taxable
income toward the EFC whether he/she is the beneficiary of a prepaid tuition or
college savings plan. According to Section 529 of the IRC, earnings distributions for
payment of QHEEs through December 31, 2001 were includable as taxable income
of the beneficiary (regardless of who is the account owner). The earnings distribution
thus may have increased the student’s EFC and could have reduced his/her financial
need.
P.L. 107-16 makes qualified distributions of QTP earnings tax-free effective in
tax years starting after December 31, 2001 for state-sponsored plans and after
December 31, 2003 for plans of eligible higher education institutions. As students
no longer will have taxable income from QTPs as of those dates, the earnings
distributions will not raise their EFC.45
It should be kept in mind that some private postsecondary institutions use other
methodologies to determine student eligibility for non-federal student aid. These
alternatives to the Department’s formula may treat either or both types of QTPs
differently when calculating student need. Although some private postsecondary
schools attempt “to avoid penalizing students for having such accounts, ... many
colleges are moving in the opposite direction, and making sure their aid formulas
count” QTPs as resources available to students.46 Similarly, while most states
43 Roth, Who Benefits from States’ College-Savings Plans?
44 For more information, see Georgie A. Thomas, “A Better Way to Plan for College,” State
Government News, Sept. 1, 2001.
45 According to the U.S. Department of Education’s Federal Student Aid Handbook,
nontaxable earnings distributions from state-sponsored QTPs will not be included in student
income (i.e., they will not be treated as untaxed income or as resources).
46 Peter Schmidt, “Bush Tax Cut Gives New Clout to States’ College-Savings Plans,” The
Chronicle of Higher Education, June 22, 2001.

---

CRS-16
include balances in Section 529 plans when determining state financial aid for
students, a sizeable share (44%) exclude the value of QTPs.47
Closing Observations
In the last several years, numerous tax-advantaged measures have been enacted
to make it easier for individuals to pursue postsecondary education. Some of these
benefits are intended to encourage taxpayers to save in advance of students attending
institutions of higher education, while other tax incentives do not come into play
until students have entered postsecondary school. The variety of higher education
provisions in the IRC could make it difficult for the typical family to determine the
best tax benefit or combination of benefits to use. A factor that could further
complicate the decision-making process is the interaction between the various tax
incentives and eligibility for student financial aid.48
Whether to establish a QTP, and then of which type, could prove to be a
difficult decision in and of itself. Families presumably would want to study the
differences between each state’s prepaid tuition plan, each private institution’s or
group of institutions’ prepaid tuition plan, and each state’s college savings plan.
To some degree, the financial situation of a family could make it easier for some
to say “yea” or “nay” to QTPs. There are some low-income families who cannot
afford to put current earnings toward saving, for college or other purposes. Some
other low-income families might be able to save for college, but by doing so, they
could reduce the amount of financial aid for which their children could well qualify.
Of course, these relatively low-income families would have to be aware of the
potentially adverse effect on student aid of Section 529 plans generally, and of
prepaid tuition plans particularly, in order to factor it into their decision-making
process.
The decision to save for higher education expenses through a QTP also could
be less difficult for high-income families. First, because of their relatively high
marginal tax rate, higher income families stand to gain more than lower income
families from the tax-advantaged treatment of Section 529 plans. Second, the
offspring of high-income families are less likely to be eligible for need-based student
aid. As a result, these families are unlikely to be swayed by whether a QTP offsets
financial need dollar-for-dollar as in the case of prepaid tuition programs, or to a
much lesser extent as in the case of college savings accounts, when considering
47 Margaret Clancy and Michael Sherraden, The Potential for Inclusion in 529 Savings
Plans: Report on a Survey of States, Center for Social Development, George Warren Brown
School of Social Work, Washington University in St. Louis, Dec. 2003.
48 For further discussion of the relationship between other education tax benefits and federal
student aid, see CRS Report RL32155, Tax-Favored Higher Education Savings Benefits and
Their Relationship to Traditional Federal Student Aid, by Linda Levine and James B.
Stedman; and CRS Report RL31129, Higher Education Tax Credits and Deduction: An
Overview of the Benefits and Their Relationship to Traditional Student Aid, by Adam Stoll,
James B. Stedman, and Linda Levine.

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CRS-17
which type of plan to setup. In addition, the estate and gift tax treatment of Section
529 plans could make them useful as estate-planning tools for wealthy families.
Middle-income taxpayers could well have the greatest problem figuring out
whether Section 529 should be part of their college financing plan and which type of
QTP to fund. If, for example, a family suffers a reversal of fortune brought about by
extended unemployment, very high medical bills or some other unanticipated event
(e.g., birth of twins) after having established a QTP, it is more likely that a middle-
income compared to high-income family will need the plan’s savings for current
consumption. As previously noted, however, account owners must pay income tax
and penalties on refunds from either type of QTP. In addition, prepaid tuition plans
typically return relatively little if any earnings compared to college savings accounts.
Thus, for some middle-income families, saving for college through a vehicle not
dedicated to a single purpose might be a more prudent choice.
The interaction of Section 529 plans with need-based student aid also is likely
to pose more of a dilemma for middle- than high-income families. If middle-income
parents want to save via a QTP and think their child will be eligible for some
assistance, then a college savings account seemingly would be the superior option
given its comparatively less adverse treatment in the Department of Education’s
financial need analysis. Indeed, some private colleges reportedly have not started
prepaid tuition programs because they do not feel comfortable recommending this
type of Section 529 plan to a family “if there is any chance at all that they would be
eligible for financial aid.”49 Alternatively, prepaid tuition programs generally are a
lower risk investment than college savings accounts and as such, prepaid plans might
be a more comfortable choice for middle- compared to high-income taxpayers.
49 Stephanie AuWerter, “Prepaid Tuition Plans,” SmartMoney.com, June 8, 2001. Available
at [http://www.smartmoney.com/consumer/index.cfm?Story=200106081].

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CRS-18
Appendix Table 1. Comparison of State-Sponsored Prepaid Tuition Plans
(as of November 24, 2003)
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Alabama (Prepaid
1990 (Sept.)
9th grade or
4 years of
Average of four-year
Contract payments
$100 to enroll, benefits must be used
Affordable
younger
undergraduate tuition
in-state public tuition
refundable plus up
within 10 years after the projected
College Tuition)
and fees at state public
and fees
to 5% interest
college entrance date, no residency
institutions
requirement
Alaska (Advance
1991
None
Credits can be used on
Full value of the
Full value of the
Plan purchasers get full value of the
College Tuition
(anytime)
tuition, fees, books,
account
account is
earnings, benefits must be used within
Payment
supplies, equipment,
refundable
15 years of the projected college
Program)
room and board
entrance date, no residency
requirement, guaranteed by the state
Colorado
1997
not
not available
not available
not available
Program not accepting contributions or
(Colorado Prepaid
available
new enrollments as of Aug. 1, 2002
Tuition Fund)
Florida (Florida
1987 (Nov.-
Under 21
Up to 4 years of
Average in-state
Only contributions
$50 to enroll, benefits must be used
Prepaid College
Jan.)
and less
undergraduate tuition
public tuition and
refunded, $50 fee
within 10 years of the projected college
Program)
than 12th
and fees at state public
fees
for contracts less
entrance date, guaranteed by the state
grade
or private higher
than two years
institutions, plus
optional plans that
cover other local fees
and dormitory

---

CRS-19
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Illinois (College
1998 (Nov.-
None
Up to nine semesters of
Average
Contributions +
$85 to enroll, three-year waiting period,
Illinois!)
Mar.)
tuition and fees at state
mean-weighted
2% interest
benefits need to be used within 10
(Newborns,
public higher
in-state
refundable less
years of projected college entrance date
Nov.-Aug.)
institutions
public tuition and
$100 fee (no
fees
interest if contract
is less than three
years old)
Kentucky
2001
Not
Not available
Not available
Not available
Program temporarily closed, new
(Affordable
available
enrollments suspended until June 30,
Prepaid Tuition
2004 at the earliest
Plan)
Maryland
April 1998
9th grade or
Up to five years of
Weighted average
$75 cancellation
$75 to enroll, up to $2,500 of
(Maryland
(Nov.-Mar.)
younger
tuition and fees at state
in-state public tuition
fee. Refund is
contributions per taxpayer per year
Prepaid College
(Newborns
public institutions
and fees
equal to 1)
state tax deductible, benefits must be
Trust)
anytime)
contributions and
used within 10 years of projected high
90% of
school graduation
earnings/losses
after three years; 2)
contributions and
50% of
earnings/losses if
cancelled within
three years

---

CRS-20
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Massachusetts (U.
1995 (May-
10th grade
Certificates worth up to
Principal + annual
Certificates only
Not a qualified 529 plan, but earnings
Plan)
June)
or younger
4 years of tuition and
compound interest
redeemable upon
are exempt from state tax, no
fees at the highest cost
equal to consumer
maturity (between
enrollment fee, no residency
institution among 81
price index
5 and 16 years).
requirement, certificates must be
participating
However,
redeemed within six years of maturity,
institutions
certificates may be
guaranteed by the state
sold anytime.
Michigan
1988 (Dec.-
8th grade or
Up to 4 years of tuition
Weighted average of
$100 cancellation
$60 enrollment fee, $25 to $85
(Michigan
April)
younger for
and fees at state public
in-state public tuition
fee. Only students
application fee based on contact
Education Trust)
full benefit
institutions
and fees
who are 18 or have
postmark date, contributions state tax
contract,
a high school
deductible if postmarked by Dec. 31 of
10th grade
diploma may
tax year, benefits must be used within
or younger
terminate
nine years of projected college entrance
for limited
contracts.
benefit
Depending on the
contract
reason for
cancellation,
refund value can be
1) the lowest; 2)
the average; or 3)
the weighted
average of in-state
public tuition

---

CRS-21
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Mississippi
1997
18 years or
Up to five years of
Weighted average
Contributions and
$60 to enroll, contributions state tax
(Prepaid
(Sept.-Nov.)
younger
undergraduate tuition
in-state tuition and
90% of interest
deductible, benefits must be used
Affordable
(Newborns
and fees at state public
fees
earnings refunded,
within 10 years of projected enrollment
College Tuition)
anytime)
institutions
cancellation fee is
date, guaranteed by the state
the lesser of $25 or
50% of
contributions
New Mexico (The
2000 (Sept.-
Contract
Up to five years of
The lesser of (1) the
Contributions
No enrollment fee. All contributions
Education Plan of
Dec.)
must be
tuition and fees at state
average in-state
refunded, plus a
deductible from state income tax, for
New Mexico)
(Newborns
purchased
public institutions
undergraduate tuition
reasonable rate of
non-qualified withdrawals earnings
anytime)
at least five
and fees for the
return (if account
subject to 20% penalty, benefits must
years before
contract type, or (2)
has been open for
be used within 10 years of projected
projected
contributions plus a
at least five years)
college entrance date
enrollment
reasonable rate of
return
Nevada (Prepaid
1998
Under 18
Up to 4 years of tuition
Weighted average
Contributions and
$100 to enroll, benefits must be used
College Tuition
(Oct.-Nov.)
and below
at state institutions
tuition and fees at
90% of interest
within 10 years of projected college
Plan Trust Fund)
(Newborns
9th grade
in-state public
earnings refunded,
entrance date or the age of 30, account
anytime)
institutions
up to $100
owner must be a state resident or
cancellation fee
alumnus of state college
Ohio (Ohio
1989
Not
Not available
Not available
Not available
Program permanently closed
Prepaid Tuition
(Anytime)
available
Program)

---

CRS-22
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Pennsylvania
1993
None
Tuition credits for the
Full value of the
Only contributions
$50 to enroll, $25 annual maintenance
(Tuition Account
(Anytime)
chosen type of
contract
refunded within 12
fee, one-year waiting period, must be
Program)
institutions
months. After, the
used within 10 years of projected
refund is the lesser
college entrance date
of the market or
full value of the
contract, but no
less than
contributions.
South Carolina
1998 (Oct.-
10th grade
Up to 4 years of tuition
The lesser of the
$100 cancellation
$75 to enroll, benefits must be used
(SC Tuition
Jan.)
or younger
and fees at state public
value of the contract
fee. Contributions
before age 30, contributions state tax
Prepayment
(Newborns
institutions
or the actual tuition
and 80% of
deductible
Program)
anytime)
cost (plus $30 fee if
earnings refunded
school is out-of-
for contracts of
state)
more than one
year.
Tennessee
1997
None
Units can be purchased
Weighted average
Contributions +
Up to $42 to enroll, two-year waiting
(Tennessee BEST
(Anytime)
with each worth 1% of
in-state tuition and
50% earnings
period
Tuition Plan)
weighted average
fees
refunded minus
tuition and fees at state
$25 fee, no refund
public institutions
before beneficiary
is college age
Texas (Texas
1996 (Oct.-
Not
Not available
Not available
Not available
Program closed to new enrollment,
Guaranteed
May)
available
existing plan contracts remain backed
Tuition Plan)
by the state

---

CRS-23
Date of
How is contract
operation
Age
value determined if
and
restriction
used for private or
State and
enrollment
on
What is covered in
out-of-state public
program name
period
beneficiary
the contract?
institutions?
Refund policy
Comments
Virginia (Prepaid
1996 (Any
9th grade or
Up to five years of
Contributions and
Within three years,
$85 to enroll, up to $2,000 per year
Education
time)
younger
tuition at state public
actual earnings up to
only contributions
state tax deductible, must be used
Program)
institutions
the highest (average)
refunded, less $100
within 10 years after high school,
in-state public tuition
penalty. After that,
guaranteed by the state
and fees for in-state
refund includes
private and
contributions plus
out-of-state
a reasonable rate of
institutions
return
Washington
1998 (Sept.-
None
Up to five years of
Full value of the
$10 penalty, refund
$50 to enroll, two-year waiting period,
(Guaranteed
Mar.)
tuition units at the
contract
can be requested
must be used within 10 years of
Education
Univ. of Washington
after two years of
projected enrollment date or the first
Tuition)
and Washington State
contract being in
use of the units whichever is later,
effect, refund
guaranteed by the state
amount either the
current value or the
weighted average
tuition, subject to
administrative fees
West Virginia
1998
Not
Not available
Not available
Not available
Program closed as of Dec. 31, 2002
(WV Prepaid
available
College Plan)
Source: Reprinted from [http://www.tiaa-crefinstitute.org/Data/statistics/pdfs/jma_prepaid.pdf], which relied on information contained in [http://www.collegesavings.org] and
[http://www.savingforcollege.com] as well as in various states’ websites.
Note: Between Jan. 1, 2002 and Dec. 31, 2010, earnings in Section 529 prepaid tuition plans are exempt from federal income tax when used for QHEEs. Unless noted, earnings are exempt
from state income tax as well and state residency is required from Section 529 prepaid tuition plans. “Waiting period” is defined as the amount of time an account needs to be open before
qualified withdrawals can be made without penalty.

---

CRS-24
Appendix Table 2. Comparison of State-Sponsored College Savings Plans
(as of December 10, 2003)
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Alabama
The Higher
2002
Option 1 (enrollment-based):
$269,000
$25 annual fee +
None
$25 annual fee
Education
three enrollment-based portfolios
between 0.90% and
reduced to $10 for
529 Fund
that shift away from equities and
1.24% underlying
state residents and
towards bonds and cash over time.
fund fee
waived for accounts
Option 2 (static portfolios):
with a balance of at
100% equities; 100% bonds, or
least $25,000. Non-
50% cash + 50% bonds. Option 3
residents must open
(individual fund portfolios):
an account through
eight individual fund portfolios
an advisor
Alaska
University
1991
Option 1 (enrollment-based):
$250,000
0.33% for Option 3.
State has no
$30 annual fee
of Alaska
multiple enrollment-based
For other options,
income tax
waived for accounts
College
portfolios that shift away from
$30 annual fee +
with investment in
Savings
equities and towards bonds and
0.30% program fee +
Option 3, automatic
Plan
cash over time. Option 2 (static
between 0.52% and
payments, or a
portfolios): 100% equities; 100%
0.84% underlying
combined balance of
fixed-income; and 60% equities +
fund fee
at least $25,000 for
40% bonds, or 100% bond and
the same beneficiary
money market. Option 3
(advanced college tuition
portfolio): prepaid plan for
University of Alaska

---

CRS-25
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Arizona
Arizona
1999
Option 1: CollegeSure CDs with
$187,000
No fee for Option 1.
Earnings state
$10 to enroll for each
Family
at least 2% return and FDIC
For mutual funds,
income tax
mutual fund.
College
insured up to $100,000. Option
between 0.49% and
exempt
Maturity for
Savings
2: Investors choose from 10
2.1% underlying
CollegeSure CDs
Program
mutual funds including all-equity,
fund fee
ranges from 1 to 25
all-bond, all-money-market, and
years. CDs must be
balanced funds
withdrawn within 30
years
Arkansas
GIFT
1999
Option 1 (age-based): 90%
$245,000
$25 annual fee +
Earnings state
$25 annual fee
College
equities for youngest, 10%
0.60% management
income tax
waived for state
Investing
equities for 19 and older. Option
fee + between 0.70%
exempt
residents and
Plan
2 (static portfolios): growth,
and 1.38%
accounts with a
growth and income, balanced, and
underlying fund fee
balance of at least
fixed-income portfolios with
$25,000. Non-
100%, 75%, 50%, and 0% in
residents must open
equities, respectively
an account through
an advisor
California
Golden
1999
Option 1 (age-based): 80%
$267,580
No fee for Option 5.
Earnings state
An additional state
State
equities for youngest, 20%
For other options,
income tax
tax of 2.5% will be
Scholar-
equities for 17 and older. Option
0.80%
exempt
imposed on earning
Share
2 (aggressive age-based): 100%
of non-qualified
Trust
equities for youngest, 30%
withdrawals. This
equities for 19 and older. Option
additional tax applies
3: 100% equities. Option 4:
to state residents
100% Social Choice equities.
regardless which
Option 5: guaranteed with at
state’s 529 plan the
least 3% return
withdrawals are from

---

CRS-26
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Colorado
Scholars
1999
Option 1 (age-based): 80%
$235,000 $30 annual fee +
All
$30 annual fee
Choice
equities for youngest, 10%
between 0.99% and
contributions
waived for state
equities for 19 and older. Option
1.09%
state tax
residents
2 (years-to-enrollment-based):
deductible.
60% equities if more than 10
Earnings state
years from enrollment, 10%
income tax
equities if less than one year from
exempt
enrollment. Option 3 (balanced):
50% equities + 50% bonds.
Option 4: 100% equities.
Option 5: 100% fixed income.
Option 6: 80% equities + 20%
fixed income. Option 7: 80%
fixed income + 20% equities
Connecticut
Connecticut
1997
Option 1 (aged-based): 80%
$235,000
No fee for Option 3.
Earnings state
Higher
equities for youngest, 20%
For other options,
income tax
Education
equities for 17 and older. Option
0.79%
exempt
Trust
2 (high equity): 80% equities +
20% bonds. Option 3 (principal
plus interest): guaranteed with at
least 3% return

---

CRS-27
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Delaware
Delaware
1998
Option 1 (age-based): 88%
$250,000
$30 annual fee +
Earnings state
$30 annual fee
College
equities for youngest, 20%
1.04%
income tax
waived for accounts
Investment
equities for those already in
exempt
with automatic
Plan
college. Option 2: 100%
payments or a
equities. Option 3: 70% equities
balance of at least
+ 30% bonds. Option 4: 45%
$25,000
bonds + 55% money market
District of
DC College
2002
Option 1 (age-based): 85%
$260,000
$30 annual fee +
Up to $3,000
$30 annual fee
Columbia
Savings
equities for youngest, 13%
0.15% management
per taxpayer
reduced to $15 for
Plan
equities for 17 and older. Option
fee + between 0.35%
per year
residents. $25
2: Investors choose from six
and 1.70%
District tax
enrollment fee for
mutual funds including all equity,
underlying fund fee
deductible
non-residents
all bond, and balanced funds.
(no underlying fund
(with carry-
Option 3 (stability of principal):
fee for Option 3)
forward up to
guaranteed with at least 3% return
5 subsequent
years).
Earnings
District tax
exempt
Florida
Florida
2002
Option 1 (age-based): portfolios
$283,000
0.75%
State has no
$50 application fee
College
that shift away from equities and
income tax
(reduced to $30 for
Investment
towards fixed income and cash
current Florida
Plan
over time. Option 2: 100%
prepaid plan
equities. Option 3: 100% fixed
participants)
income. Option 4: 100% money
market. Option 5: 50% equities
+ 50% fixed income

---

CRS-28
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Georgia
Georgia
2002
Option 1 (age-based): 80%
$235,000
No fee for Option 5.
Up to $2,000
State tax deductions
Higher
equities for youngest, 15%
For other options,
per
phase out between
Education
equities for 17 and older. Option
0.85%
beneficiary
$100,000 and
Savings
2 (aggressive age-based): 100%
per year state
$105,000 for joint
Plan
equities for youngest, 15%
tax
tax filers ($50,000
equities for 23 and older. Option
deductible.
and $55,000 for
3: 100% equities. Option 4
Earnings state
single tax filers). For
(balanced): 50% equities + 50%
tax exempt, if
non-qualified
bonds. Option 5 (guaranteed):
account has
withdrawals,
guaranteed with at least 3% return
been open for
contributions for
more than a
which previous state
year
tax deductions were
taken will be subject
to state income tax
Hawaii
Tuition-
2002
Option 1 (age-based): 85%
$297,000
No fee for Option 3.
Earnings state
$25 annual fee
EDGE
equities for youngest, 10%
For other options,
tax exempt
waived for residents
equities for 18 and older. Option
$25 + 0.95%
or accounts with
2 (static): aggressive, balanced,
balance of at least
and conservative portfolios with
$10,000. Non-
80%, 60%, and 40% in equities,
residents must open
respectively. Option 3 (savings
an account through
account option): FDIC insured
an advisor
savings account

---

CRS-29
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Idaho
Idaho
2001
Option 1 (age-based): 75%
$235,000
No fee for Option 3.
Up to $4,000
The entire amount of
College
equities for youngest, 10%
For other options,
per taxpayer
a non-qualified
Savings
equities for 17 and older. Option
0.70%
per year state
withdrawal,
Plan
2: 100% equities. Option 3:
tax
including both the
guaranteed with at least 3% return
deductible.
earnings portion and
Earnings state
the principal portion,
tax exempt
will be included in
the owner’s taxable
income for state tax
purposes
Illinoisd
Bright Start
2000
Option 1 (age-based): 90%
$235,000
0.99%
All
College
equities for youngest, 10%
contributions
Savings
equities for 18 and older. Option
state tax
Plan
2 (age-based with bank
deductible.
deposits): similar to Option 1,
Earnings
with bank deposits. Option 3:
exempt from
100% bonds. Option 4: 100%
state tax
equities. Option 5: 50% bonds +
50% bank deposits. Option 6:
principal protection income
portfolio

---

CRS-30
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Indiana
College-
1997
Option 1 (age-based): 90%
$236,750
$30 annual fee +
Earnings state
$30 annual fee
Choice 529
equities for youngest, 100%
administrative fees +
income tax
reduced to $10 for
Plan
money market for 20 and older.
between 0.35% and
exempt
residents, reduced to
Option 2 (static portfolios): four
1.49% underlying
$25 for accounts
portfolios with 100% equities, two
fund fees
converted from
with 100% bonds, one with 100%
former program, and
money market, one with 90%
waived for accounts
equities, one with 70% equities,
with automatic
one with 50% equities, and one
payments or $25,000
with 30% equities. Option 3
balance. $10 annual
(individual fund portfolios): 8
state authority fee for
individual fund portfolios
non-residents. Very
complicated fee
structures
Iowa
College
1998
Option 1(age-based): multiple
$239,000
0.65%
Up to $2,230
Beneficiary must be
Savings
portfolios available that shift away
per taxpayer
under 18 when
Iowa
from equities and towards fixed
per year state
account opened.
income and cash over time.
tax
Account balance
Option 2 (statistic portfolios): 8
deductible.
must be paid out
portfolios including 100%, 80%,
Earnings state
within 30 days after a
60%, 40%, 20% equities; 100%
tax exempt
beneficiary turns 30
bonds; 100% money market; and
80% bonds + 20% money market,
respectively

---

CRS-31
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Kansas
Learning
2000
Option 1 (age-based): three age-
$235,000 $27 annual fee +
Up to $2,000
12-month waiting
Quest
based investment tracks
0.39% management
per taxpayer
period.e $27 annual
Education
(aggressive, moderate, and
fee + between 0.47%
per
waived for residents
Savings
conservative) available. Option 2
and 0.94%
beneficiary
and for accounts with
Program
(two static portfolios): 100%
underlying fund fee
per year state
a balance of at least
equities or 100% money market
tax
$25,000
deductible.
Earnings state
tax exempt
Kentucky
Education
1990
Option 1 (age-based): 80%
$235,000
No fee for Option 3.
Earnings state
A 1% Kentucky
Savings
equities for youngest, 15%
For other options,
tax exempt
penalty applies to
Plan Trust
equities for 17 and older. Option
0.80%
non-qualified
2: 100% equities. Option 3:
withdrawals
guaranteed with at least 3% return
Louisiana
Louisiana
1997
State treasurer’s office invests
$197,600 None
Up to $2,400
Residency required.
START
mostly in fixed income securities
per
12-month waiting
beneficiary
period.e Up to 14%
per year state
matching grant
tax deductible
available for
with carry-
accounts with at least
forward.
$100 contributions
Earnings state
during the year
tax exempt

---

CRS-32
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Maine f
NextGen
1999
Option 1 (age-based): 90%
$250,000
$50 annual fee +
Earnings state
$50 annual fee
College
equities for youngest, 10%
0.55% management
tax exempt
reduced to $25 for
Investing
equities for 20 and older. Option
fee + between 0.77%
payroll deposits and
Plan
2: 100% equities. Option 3:
and 1.12%
waived for residents,
75% equities + 25% fixed income.
underlying fund fee
accounts with annual
Option 4: 100% fixed income
contributions of at
least $2,500, or a
balance of at least
$20,000. Up to $200
initial matching grant
and up to $100
annual matching
grant available for
families whose
adjusted gross
income is less than
$50,000
Maryland
Maryland
2001
Option 1 (age-based): multiple
$250,000
$30 annual fee +
Up to $2,500
$90 to enroll (may be
College
age-based portfolios available that
0.38% management
per account
reduced under certain
Investment
shift away from equities and
fee + between 0.35%
per year state
conditions). $30
Plan
towards fixed income and cash
and 0.96%
tax deductible
annual fee waived
over time. Option 2: 100%
underlying fund fee
(with carry-
for accounts with
equities. Option 3: 100% bonds.
forward up to
automatic
Option 4: 60% equities + 40%
10 succeeding
contributions or a
bonds
years).
balance of at least
Earnings state
$25,000
tax exempt

---

CRS-33
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Massachusetts
U. Fund
1999
Option 1 (age-based): 86%
$250,000
$30 annual fee +
Earnings state
$30 annual fee
equities for youngest, 20%
1.03%
tax exempt
waived for accounts
equities for those already in
with automatic
college. Option 2: 100%
contributions or a
equities. Option 3: 70% equities
balance of at least
+ 30% bonds. Option 4: 45%
$25,000
bonds + 55% money market
Michigan
Michigan
2000
Option 1 (age-based): 72%
$235,000
No fee for Option 3.
Up to $5,000
One-third matching
Education
equities for youngest, 13-15%
For other options,
per taxpayer
grant (up to $200)
Savings
equities for 17 and older. Option
0.65%
per year state
available for new
Program
2: 100% equities. Option 3:
tax
accounts with a state
guaranteed with at least 3% return
deductible.
resident beneficiary
Earnings state
who is 6 or younger,
tax exempt
and whose family
income is less than
$80,000

---

CRS-34
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Minnesota
Minnesota
2001
Option 1 (age-based): 72%
$235,000
No fee for Option 3.
Earnings state
For accounts with at
College
equities for youngest, 13-15%
For other options,
tax exempt
least $200
Savings
equities for 17 and older. Option
0.65%
contributions made
Plan
2: 100% equities. Option 3:
during the year, 15%
guaranteed with at least 3% return
state matching grant
is available for state
residents with family
income less than
$50,000 (5%
matching rate for
family income
between $50,000 and
$80,000). Annual
maximum grant is
$300 per beneficiary
Mississippid
Mississippi
2001
Option 1 (age-based): 72%
$235,000
No fee for Option 3.
Up to $10,000
Affordable
equities for youngest, 18%
For other options,
per taxpayer
College
equities for 17 and older. Option
0.60% management
per year state
Savings
2: 100% equities. Option 3:
fee + between 0-
tax
guaranteed with at least 3% return
16% and 0-23%
deductible.
underlying fund fee
Earnings state
tax exempt

---

CRS-35
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Missouri
MO$T
1999
Option 1 (age-based): 72%
$235,000
No fee for Option 3.
Up to $8,000
(Missouri
equities for youngest, 13-15%
For other options,
per taxpayer
Saving for
equities for 17 and older. Option
0.65%
per year state
Tuition
2: 100% equities. Option 3:
tax
Program)
guaranteed with at least 3% return
deductible.
Earnings state
tax exempt
Montana
Montana
1998
Option 1: CollegeSure CDs
$262,000 No fee for Option 1.
Up to $3,000
State tax deductions
Family
issued by College Savings Banks
For Option 2, $25
per taxpayer
will be recaptured at
Education
with at least 2% return (maturity
annual fee (waived
per year state
the highest state
Savings
of CDs needs to coincide with the
for accounts with
tax
income tax rate if
Program
expected years of college
automatic payments
deductible.
withdrawals are not
attendance), FDIC insured up to
or a balance of at
Earnings
used for higher
$100,000 per account. Option 2:
least $25,000) +
exempt from
education or if
investors choose from 15
underlying fund fees
state tax
withdrawals are
individual mutual funds and 5
made within three
static portfolios
years of account
opening
Nebraska
Nebraska
2001
Option 1 (age-based): multiple
$250,000
$20 annual fee +
Up to $1,000
College
age-based portfolios that shift
0.60% management
per year state
Savings
away from equities and toward
fee + up to 1.17%
tax deductible
Plan
fixed income and cash over time.
underlying fund fee
($500 if
Option 2: six target portfolios
married filing
with 100%, 80%, 60%, 40%, 20%,
separately).
and 0% equities, respectively.
Earnings state
Option 3: 22 individual fund
tax exempt
portfolios

---

CRS-36
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Nevada
The Strong
2001
Option 1 (age-based): three age-
$250,000
$10 annual fee +
State has no
$10 to enroll
529 Plan
based portfolios that shift away
1.25% (0.85% for
income tax
from equities and towards fixed
Option 6)
income and cash over time.
Option 2 (aggressive): 90%
equities. Option 3 (moderate):
65% equities. Option 4
(balanced): 50% equities.
Option 5 (conservative): 30%
equities. Option 6 (all bond):
100% bonds
New Hampshire
Unique
1998
Option 1 (age-based): 86%
$250,000
$30 annual fee +
State has no
$30 annual fee
College
equities for youngest, 20%
1.04%
income tax.
waived for accounts
Investing
equities for those already in
Earnings
with automatic
Plan
college. Option 2: 100%
exempt from
contributions or a
equities. Option 3: 70% equities
state interest
balance of at least
+ 30% bonds. Option 4: 45%
and dividends
$25,000
bonds + 55% money market
tax

---

CRS-37
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
New Jersey
New
1998
Option 1 (age-based): 100%
$305,000 0.40%
management
Earnings
Residency required.
Jersey’s
equities for the youngest, 0%
fee + between 0.45%
exempt from
Between $500 and
Better
equities for 21 and older. Option
and 1.17%
state tax
$1,500 scholarship
Educational
2: three 100% equity portfolios.
underlying fund fee
for college in NJ
Savings
Option 3: 50% equities. Option
available for
Trust
4: 80% fixed income + 20% cash.
accounts that have
Option 5: 100% fixed income
been open for more
than 4 years and with
at least $1,200
contributions
New Mexico
The
2000
Option 1 (age-based): 85%
$294,000
$30 annual fee +
All
1-year waiting
Education
equities for youngest, 20%
0.30% management
contributions
period.e $30 annual
Plan’s
equities for 19 and older. Option
fee + between 0.53%
state tax
fee waived for
College
2: 100% equities. Option 3:
and 1.22%
deductible.
residents, accounts
Savings
100% bonds. Option 4: 100%
underlying fund fee
Earnings
with automatic
Program
money market. Option 5: five
exempt from
contributions or a
other static portfolios with 85%,
state tax
balance of at least
70%, 55%, 40%, and 20% in
$10,000
equities, respectively

---

CRS-38
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
New York
New York’s
1998
Option 1 (age-based): 65%
$235,500 0.55% to 0.60% all-
Up to $5,000
3-year waiting
College
equities for youngest, 100%
inclusive
per taxpayer
period.e Starting
Savings
income for 19 and older. Option
management fee,
per year state
2003, rollovers from
Program
2 (aggressive age-based): 100%
decreasing as
tax
NY’s 529 plan to
equities for youngest, 35%
program assets
deductible.
another state’s plan
equities for 16-18, 100% income
increase
Earnings
will be considered
for 19 and older. Option 3
exempt from
non-qualified
(conservative): 50% equities for
state tax
withdrawals for NY
youngest, 100% money market for
income tax, meaning
19 or older. Option 4: 12 static
the earnings and the
portfolios, 8 of which invest in a
contributions for
single mutual fund, and 4 of
which previous state
which invest in a blend of funds
tax deductions were
taken will be subject
to state income tax

---

CRS-39
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
North Carolinad
North
1998
Option 1 (age-based): portfolios
$276,046 $25 annual fee +
Earnings state
$25 waived for
Carolina’s
that shift away from equities and
0.25% management
income tax
accounts with
National
towards fixed income and cash
fee (0.10% for
exempt
automatic
College
over time. Option 2: 100%
Option 1) + between
contributions or a
Savings
equities. Option 3 (balanced):
0.05% and 1.28%
balance of more than
Program
40% equities + 60% fixed income.
underlying fund fee
$1,000. Option 5
Option 4 (income fund): 100%
requires a lump-sum
fixed income. Option 5
minimum
(protected stock fund):
contribution of
guaranteed with a 3% return per
$1,000 for a five-
year or 70% of the gain in the
year period. Non-
S&P 500 Price Index over five
residents must open
years, whichever is greater.
an account through
Option 6: any of the 22 portfolios
an advisor
used in the age-based option
North Dakota
College
2001
Option 1 (age-based): multiple
$269,000
$30 annual fee +
Earnings state
$30 annual fee and
SAVE
age-based portfolios that shift
0.50% management
income tax
0.50% management
away from equities and towards
fee + between 0.68%
exempt
fee waived for state
fixed income and cash over time.
and 1.22%
residents
Option 2 (static portfolios): two
underlying fund fee
aggressive growth portfolios with
90% equities and two balanced
portfolios with 50% equities and
50% bonds

---

CRS-40
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Ohio
College
1989
Option 1 (age-based): 85%
$245,000
No fee for Option 6.
Up to $2,000
Residency required
Advantage
equities for youngest, 15%
For others, 0.55% to
per tax return
for Option 6. Other
Savings
equities for 21 and older. Option
1.34%
per year state
options are available
Plan
2 (balanced): 60% equities +
tax
to non-residents
30% bonds + 10% cash. Option 3
deductible,
through an advisor.
(growth): 85% equities + 15%
with
Beneficiary must be
bonds. Option 4 (aggressive
unlimited
18 or older when
growth): 100% equities. Option
carry-forward
prepaid tuition units
5: 13 single-fund portfolios.
in future
are redeemed
Option 6: Guaranteed Savings
years.
Fund that is essentially a prepaid
Earnings state
plan
tax exempt
Oklahoma
Oklahoma
2000
Option 1 (age-based): 72%
$235,000
No fee for Option 3.
Up to $2,500
College
equities for youngest, 18%
For other options,
per account
Savings
equities for 17 and older. Option
0.55% management
state tax
Plan
2: 100% equities. Option 3:
fee + between 0.11%
deductible.
guaranteed with at least 3% return
and 0.13%
Earnings state
underlying fund fee
tax exempt
Oregon
Oregon
2001
Option 1 (age-based): 90%
$250,000
$30 annual fee +
Up to $2,000
$30 annual fee
College
equities when 10 years or more
1.25% (0.975% for
per year state
waived for state
Savings
away from college, 10% equities
the 100%-equity
tax deductible
residents, accounts
Plan
when in college. Option 2
portfolio)
($1,000 if
with automatic
(static): six portfolios with
married filing
payments, or a
100%, 90%, 60%, 50%, 30% and
separately).
balance of at least
10% in equities, respectively
Earnings state
$25,000
tax exempt

---

CRS-41
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Pennsylvaniad
TAP 529
2002
Option 1 (age-based): 85%
$290,000
$25 annual fee +
Earnings state
$25 annual fee
Investment
equities for youngest, 10%
0.35% management
tax exempt
waived for accounts
Plan
equities for 19 and older. Option
fee + between 0.45%
with automatic
2 (age-based): 100% equities for
and 1.69%
contributions or a
youngest, 10% equities for 19 and
underlying fund fee
balance of at least
older. Option 3 (risk-based):
$20,000. Non-
five static portfolios with 100%,
residents must open
80%, 60%, 40%, 0% in equities,
an account through
respectively. Option 4 (socially
an advisor
responsible): one bond portfolio
and one equity portfolio
Rhode Island
College-
1998
Option 1 (age-based): 100%
$301,550
$25 annual fee +
Up to $500
$25 annual fee
Bound Fund
equities for youngest, 25%
between 0.70% and
per taxpayer
waived for state
equities for 19 and older. Option
1.67% underlying
per year state
residents, accounts
2 (age-based): similar to Option
fund fee
tax deductible
with automatic
1, with more equities. Option 3:
with carry-
contributions or a
100% equities (invested in
forward to
balance of at least
aggressive funds). Option 4:
future years.
$25,000. Non-
100% equities (invested in growth
Earnings state
residents must open
funds). Option 5: 60% equities +
tax exempt
an account through
40% fixed income. Option 6:
an advisor
100% fixed income. Option 7: 9
single-fund portfolios

---

CRS-42
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
South Carolina
Future
2002
Option 1 (age-based): 100%
$265,000
$25 annual fee +
All
$25 annual fee
Scholar 529
equities for youngest, 15%
0.20% management
contributions
waived for state
College
equities for 18 and older. Option
fee + between 0.20%
state tax
residents and
Savings
2: six portfolios with different
and 1.23%
deductible.
employees. Non-
Plan
equity exposures. Option 3:
underlying fund fee
Earnings state
residents must open
three single-fund portfolios
tax exempt
an account through
an advisor
South Dakota
College
2002
Option 1 (age-based): 85%
$305,000
0.65% for Option 1,
State has no
Non-residents must
Access 529
equities for youngest, 5% equities
0.53% for Option 2
income tax
open an account
for 18 and older. Option 2 (real
through an advisor
return plus portfolio): 100%
fixed-income
Tennesseef
Tennessee
2000
Option 1 (age-based): 75%
$235,000 0.95%
State has no
BEST
equities for youngest, 10%
income tax.
Investment
equities for 17 and older. Option
Earnings
Savings
2: 100% equities
exempt from
Program
state interest
and dividends
tax

---

CRS-43
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Texas
Tomorrow’s
2002
Option 1 (age or enrollment-
$257,460
$30 annual fee +
State has no
$30 annual fee
College
based): 90% equities for
1.0% for the age-
income tax
waives for state
Investment
youngest, 15% equities for 15 and
based and blended
residents and
Plan
older. For adult beneficiaries,
portfolios, 0.45% for
accounts with
90% equities for 15 or more years
the stable value and
automatic
away from enrolling in college,
single fund portfolios
contributions or a
15% equities if within two years
balance of at least
of enrolling. Option 2: 60%
$25,000. Non-
equities + 40% fixed income.
residents must open
Option 3: 100% equities.
an account through
Option 4: single-fund options
an advisor
that offer 13 portfolios focusing
on a single investment strategy or
asset class
Utah
Utah
1997
Option 1: 100% State
$280,000
No fee for Option 1.
Up to $1,435
Only contributions
Educational
Treasurer’s Investment Fund,
For other options, up
per
(up to the current
Savings
which invests in money market
to $25 annual fee +
beneficiary
balance) are refunded
Plan Trust
securities. Option 2: 100% index
0.25% management
per taxpayer
if account is
equities. Option 3: 100% bonds.
fee if balance is
per year state
cancelled within two
Option 4: 100% diversified
greater than $5,000
tax deductible
years of opening.
equities. Option 5-9 (age-based):
(0.75% otherwise) +
(account must
Benefit payout must
multiple age-based portfolios
between 0.0275%
be opened
begin before the
available that shift away from
and 0.65%
before the
beneficiary turns 27,
equities and towards fixed income
underlying fund fee
beneficiary
or 10 years after
and cash over time
turns 19 for
opening the account,
this benefit)
whichever is later
Earnings state
tax exempt.

---

CRS-44
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Vermont
Vermont
1999
Option 1 (age-based): 80%
$240,100
No fee for
Contributions
Tax credit will be
Higher
equities for youngest, 15%
Option 3. 0.80% for
made after
recaptured for non-
Education
equities for 17 and older. Option
others.
2003 are
qualified
Savings
2: 100% equities. Option 3
eligible for a
withdrawals
Plan
(interest income option): 100%
tax credit that
fixed-income securities
is 5% of
contributions
of up to
$2,000 per
beneficiary.
Earnings state
tax exempt
Virginia
Virginia
1999
Option 1 (age-based portfolios):
$250,000
Between 0.85% and
Up to $2,000
$85 to enroll.
Education
multiple age-based portfolios
1.0%
per account
Benefits must be
Savings
available that shift away from
per year state
paid out within 10
Trust
equities and towards fixed income
tax deductible
years after the
and cash over time. Option 2:
with
projected high school
80% equities + 20% fixed income.
unlimited
graduation date (or,
Option 3: 60% equities + 40%
carry-forward
for adults, 10 years
fixed income. Option 4: 20%
in future
after the account is
equities + 80% fixed income.
years.
opened)
Option 5: 100% money market
Unlimited
state tax
deduction for
owners 70 and
older.
Earnings state
tax exempt

---

CRS-45
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
West Virginia
Smart 529
2002
Option 1 (age-based): 100%
$265,620
$25 annual fee +
All
$25 annual fee
Plan
equities for youngest, 20%
1.16%
contributions
waived for state
equities for 19 and older. Option
state tax
residents and
2: 100% equities. Option 3:
deductible.
accounts with
80% equities + 20% bonds.
Earnings state
automatic
Option 4: 60% equities + 30%
tax exempt
contributions or a
bonds + 10% stable value
balance of at least
portfolio. Option 5 (stable value
$25,000. Non-
portfolio): aims to preserve
residents must open
principal and interest income
an account through
an advisor
Wisconsin
EDVEST
1997
Option 1 (age-based): 90%
$246,000
$10 annual fee +
Up to $3,000
$10 enrollment fee
Wisconsin
equities for youngest, 100% bonds
1.15% asset-based
per
per portfolio (waived
College
for those who are less than two
fee (0.90% for
beneficiary
for accounts opened
Savings
years away from college. Option
Option 7)
per year state
through an
Program
2: 100% index equities. Option
tax
employed-sponsor
3: 90% equities + 10% bonds.
deductible.
plan). $10 annual fee
Option 4: 70% equities + 30%
Earnings state
waived for accounts
bonds. Option 5: 50% equities +
tax exempt
with automatic
50% bonds. Option 6: 100%
contributions or with
bonds. Option 7 (stable value
a balance of at least
portfolio): primarily invested in
$25,000
government bonds

---

CRS-46
Current
lifetime
Estimated average
Name of
First date
account
annual expenses
the
of
Investment options
balance
and other fees for
State tax
State
program
operation
for direct-sold plansa
limit
direct-sold plansb
advantages
Commentsc
Wyoming
Wyoming
2000
Option 1 (age-based): 90%
$245,000
$25 annual fee +
State has no
$25 annual fee
College
equities for youngest, 10%
0.95% management
income tax
waived for state
Achieve-
equities for 22 and older. Option
fee + between 0.85%
residents or accounts
ment Plan
2: 100% equities. Option 3:
and 1.45%
with a balance of at
75% equities + 25% fixed income.
underlying fund fee
least $25,000
Option 4: 50% equities + 50%
fixed income. Option 5: 100%
fixed income
Source: Reprinted from [http://www.tiaa-crefinstitute.org/Data/statistics/pdfs/jma_savingsplans.pdf], which relied on information contained in [http://www.collegesavings.org] and
[http://www.savingforcollege.com] as well as in various states’ websites.
a. The investment options listed in this table refer to those available to accounts opened directly through the program. More options may be available for accounts opened through an advisor
or broker.
b. Estimated expense charges apply to accounts opened directly through the program. Additional and/or higher fees may apply to accounts opened through brokers.
c. The earnings of non-qualified withdrawals are subject to income tax at the distributee’s rate in addition to a 10% federal penalty tax.
d. Earnings on qualified withdrawals are subject to state tax if withdrawals are from an out-of-state plan.
e. “Waiting period” is defined as the amount of time an account needs to be open before qualified withdrawals can be made without penalty.
f. Earnings on qualified withdrawals are subject to state interest and dividend tax if withdrawals are from an out-of-state plan.

---