Education Savings FAQs

  • Anyone 18 years or older with a U.S. Taxpayer identification number, which may be a Social Security number, can set up and contribute to a Franklin Templeton 529 College Savings Plan offered nationwide by the New Jersey Higher Education Student Assistance Authority,1 regardless of income or where the contributor lives.

    Contributors to Franklin Templeton 529 College Savings Plans are referred to as "account owners". Eligible account holders include parents, grandparents, other relatives and family friends. Beneficiaries of Franklin Templeton 529 College Savings Plan accounts may be any age.

  • Savings can be used for any qualified tuition expense. Additionally, for accredited higher education schools (e.g. college or vocational schools), savings can be used for additional qualified expenses including mandatory fees, supplies, books or other required equipment, and room and board, if the beneficiary is enrolled at least half-time.2

  • 529 savings can be used at most accredited two- and four-year colleges and universities and vocational schools, including many outside the U.S. In general, to be considered eligible, a higher education school must meet two requirements: (1) it must meet accreditation criteria described in Section 481 of the Higher Education Act of 1965 (in effect on August 5, 1997) and (2) it must be eligible to participate in Title IV U.S. federal financial-aid programs. If a school has been assigned a federal school code by the U.S. Department of Education, then it has met this plan's requirements and is eligible under Internal Revenue Code Section 529.

    Visit the U.S. Department of Education, for a complete list of all approved higher education schools.

    In addition, up to $10,000 per year per beneficiary can be used for tuition for eligible public, private and religious primary and secondary educational institutions (K-12.) At this time, it is not clear what, if any, expenses will be regarded as “tuition” in the case of public schools.2

  • Yes. To move investments from an UGMA or UTMA account into a Franklin Templeton 529 College Savings Plan, the UGMA/UTMA custodian must liquidate any securities in the UGMA/UTMA account and use the resulting cash to invest in the Franklin Templeton 529 College Savings Plan. The liquidation is a taxable event, and the minor owner of the UGMA/UTMA assets will be responsible for taxes on any gain realized on the securities liquidated. Investment in the 529 plan may result in assessment of a sales charge.

    The minor must remain the 529 plan's beneficiary at all times and, when the minor becomes a legal adult, he or she will gain full control of the account assets.

    These factors have significant income, estate and gift, and financial aid qualification considerations that should be discussed with a tax advisor prior to liquidating UGMA/UTMA assets and investing them in a 529 college savings plan.

  • Assets may roll over from another qualified tuition program established under Section 529 of the Internal Revenue Tax Code to Franklin Templeton 529 College Savings Plan. This rollover will be subject to federal tax requirements, and you must provide Franklin Templeton with acceptable documentation from the prior program detailing which portion of any rollover contribution consists of principal and which consists of earnings. Contact a tax advisor for more information.

  • No. All contributions to a Franklin Templeton 529 College Savings Plan must be in cash (by check or electronic funds transfers).

529 Savings Plans: 2018 Tax Reform FAQs

  • How does the recent federal tax reform legislation (H.R. 1) affect 529 savings plans?

    There are two major elements of the tax reform legislation signed into law on December 22, 2017 (H.R. 1) that impact 529 savings plans.

    • First, up to $10,000 per year may be withdrawn from 529 savings plans, federal income tax-free, if used for tuition expenses at private, public and religious K-12 schools. It is not currently clear what public K-12 school costs, if any, will be regarded as tuition for this purpose.
    • Second, the federal tax law now allows rollovers from a 529 savings plan account to an account in a 529A “ABLE” savings plan for the same beneficiary or a “member of the family” of the same beneficiary. The amount that may be rolled over cannot exceed, together with contributions from other sources to the applicable beneficiary’s plan account, the annual limit on contributions to an ABLE account ($15,000 in 2018) without regard to the increased limit permitted for contributions by certain working beneficiaries.
  • Will my distribution for K-12 education expenses be free of taxes?

    The amendment to the federal tax code lists “expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school’’ as qualified expenses and therefore federal income tax-free, subject to the $10,000 annual limit described above. Accordingly, to be eligible, a K-12 expense must be “tuition.”

    However, the treatment of such distributions for state tax purposes depends on the tax law of the applicable state. Because state tax laws relating to distributions from 529 plans were enacted prior to the change in federal tax law permitting federally tax-free distributions for K-12 expenses, the state tax status of such distributions may be unclear in some states. Moreover, it remains to be seen if additional regulations or restrictions will be implemented in states that offer a state income tax deduction or credit for contributions to 529 savings plans. Contact a tax professional to understand the tax impact of distributions for K-12 expenses in your state.

  • Can the 529 plan be used for other educational expenses related to K-12 (e.g. SAT prep classes, GED, sports, aftercare programs or other school-related items?)

    At this time, in order for a 529 plan withdrawal to be considered qualified (i.e. federal income tax-free), the withdrawal must be used to pay for K-12 “tuition” expenses. The IRS has not provided any guidance on whether anything other than a tuition bill from the applicable school qualifies as “tuition”, and accordingly, other types of educational expenditures do not appear to qualify. It is also uncertain what, if any, expenses of K-12 public school will be regarded as tuition for this purpose.

  • Does the $10,000 distribution limit apply if it is used for high school classes that offer AP college credits?

    The $10,000 limit applies to tuition expenses at an elementary or secondary school (i.e. K-12). Therefore, if AP classes are taken at a secondary school (e.g. a high school), the limit would apply.

  • Does the new tax law cover preschool if the preschool is at an elementary school?

    The amendment to the federal tax code lists “expenses for tuition in connection with enrollment or attendance” at an elementary school as a qualified expense. However, preschool is not elementary school, regardless of where it is held, so tuition expenses for preschool would not be qualified 529 plan expenses.</p

  • Is the NJBEST Scholarship available when a beneficiary attends K-12 school?

    No, the scholarship provided by the New Jersey Higher Education Student Assistance Authority to New Jersey residents participating in the NJBEST 529 College Savings Plan1 is only for attendance at an eligible New Jersey higher-educational institution and is not for elementary or secondary school attendance. The NJBEST Scholarship is subject to certain conditions and requirements. Please see the Investor Handbook for more complete information.

  • Are there federal income tax consequences for switching from a Coverdell ESA to a 529?

    Amounts held in a Coverdell ESA can be moved to a 529 plan account for the same beneficiary with no federal income tax consequences, thereby allowing education savers to consolidate their education savings.

  • Where can I find additional information?

    The new tax law can be reviewed at congress.gov.

The information provided above is based on our current understanding of federal tax laws and regulations and interpretations and guidance by the Internal Revenue Service, which are subject to change.