| 529 plan (also, 529 college savings plan, qualified tuition plan) |
A tax-advantaged program designed to help families save for college. Its name comes from the Internal Revenue code section that established the plans. |
| Account owner (also, participant) |
The person who establishes the account and controls the assets held in it on behalf of a beneficiary. |
| Age-based portfolio |
A portfolio in which investments are automatically adjusted to become more conservative as the beneficiary nears college-age. You do not have to manually adjust the portfolio. (See individual portfolio.) |
| Asset allocation |
The process of spreading an investment among various asset classes, like stocks, bonds, real estate, and cash. It is also useful in optimizing the risk/reward tradeoff, based on an individual's goals. |
| Automatic investment plan (AIP) |
Allows you to contribute to your 529 plan account through regular automatic debits from a checking or savings account.1 |
| Beneficiary (also, designated beneficiary) |
The person (student) for whom the 529 plan account is established, who can use (but does not have control of) the assets of the plan for higher education. |
| Bond |
A debt instrument issued by a government or company in order to raise capital. A bond indicates that you have an interest in and claim to the bond issuer's assets. A 529 plan portfolio can be invested in a mutual fund or ETF that owns bonds. |
| Contribution |
The money that you invest in a 529 plan account. |
| Earnings |
The growth generated by an investment. |
| Electronic funds transfer (EFT) |
A computer-based process in which money is transfered from one account to another. "EBT," electronic bank transfer is a transfer of money from a bank account to another account, such as a 529 plan account. |
| Eligible educational institution |
An institution must be eligible in order to use the assets of a 529 plan account without incurring tax penalties. Generally, a post-secondary institution that offers credit toward a degree or credential. Certain trade and vocational institutions also qualify. An institution must be eligible to participate in a student financial aid program under Title IV of the Higher Education Act of 1965. |
| Exchange (annual investment exchange) |
The law allows you to make a change in your 529 plan investment choices once per calendar year. This is referred to as the annual investment exchange. |
| Exchange-traded fund (ETF) |
A type of investment, traded on exchanges, which combines features of mutual funds, stocks, and bonds. ETFs are often funds that, like index mutual funds, represent portfolios of securities (like stocks or bonds) that track specific indexes. A 529 portfolio can be invested in ETFs, but it is not itself an ETF. |
| Individual portfolio |
A type of static asset investment vehicle used in 529 plans. You can generally create your own diversified portfolio from among the plan's choices. Unlike an age-based portfolio, this will not rebalance automatically; you have to make the reallocations manually. (See age-based portfolio.) |
| Member of the family |
An account's beneficiary can be changed to an approved Member of the Family, as defined in Section 529, without incurring a penalty. A Member of the Family means an individual who is related to the beneficiary as follows:2
- Father, mother, or an ancestor of either
- Son, daughter, or a descendant of either
- Stepfather/mother
- Stepson/daughter
- Brother, sister, stepbrother/sister, half-brother/sister
- Brother-in-law/sister-in-law/son-in-law/daughter-in-law
- Son or daughter of a brother or sister
- Spouse of the beneficiary or spouse of any of the above
- First cousin
|
| Mutual fund |
A pool of money from many investors that invests in a "basket" of securities (stocks, bonds, cash, or a combination of these). A 529 plan portfolio can be invested in a mutual fund, but it is not one; it is comprised of municipal securities.3 |
| Non-qualified withdrawal |
Amounts in a 529 account can be withdrawn for purposes other than paying for a beneficiary's qualified higher education expenses. These are called non-qualified withdrawals. Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. |
| Portfolio |
An investment offered through a 529 plan; it is made up of municipal securities. When you invest in a 529 plan portfolio you are buying units of the portfolio (not the underlying mutual fund or ETF). |
| Prepaid plan |
A type of 529 plan in which your contributions go toward the cost of enrollment at a college (sometimes limited to in-state, though that can differ with the plan). This is different from savings plans, whose assets can be used at any eligible institution around the country. |
| Qualified expense (also, qualified higher education expense) |
To use 529 plan assets without incurring taxes, the expense must be qualified. Qualified expenses include tuition, fees, and the cost of books, supplies, and equipment required for the enrollment or attendance of the beneficiary at an eligible educational institution. Certain room and board expenses may also be qualified. |
| Rollover |
Moving from one investment to another. You can invest your assets from an UGMA/UTMA account to a 529 plan account. |
| Stock (also known as an equity) |
A financial instrument that indicates that you have an ownership position in a company. A 529 portfolio may invest in mutual funds that own stocks. |
| Tax deferred |
When taxes are paid at a future date. In the case of a 529, your earnings grow tax deferred; when they are withdrawn to pay for a qualified education expense, they are tax free. |
| UGMA/UTMA (Uniform Gift to Minors Act/ Uniform Transfer to Minors Act) |
Laws that allow an adult to contribute to a custodial account in a minor's name. The custodian is responsible for the account until the minor reaches legal age, at which point he or she controls the account's assets. |
| Withdrawal |
Money that you take out of a 529 plan account. Withdrawals are either qualified or non-qualified. Qualified withdrawals are those used for qualified education expenses at Eligible educational institutions. All other withdrawals are non-qualified. |
Glossary