Frequently Asked Questions
What is a 529 Plan?
A 529 plan is an education savings plan operated by a state or educational institution designed to help families set-aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code that created these types of savings plans in 1996.
What are the benefits of a 529 plan?
Federal tax-free earnings if the money is used for college: If money is withdrawn to pay for qualified education-related expenses, the earnings are not subject to federal income tax.
Availability: Section 529 plans are open to anyone, regardless of income level. And participants don’t need to be a parent to set up an account.
Favorable federal gift tax treatment: Contributions to a 529 plan are considered completed, present interest gifts for gift tax purposes. This means that contributions qualify for the $14,000 annual gift tax exclusion. And, with a special election, a lump sum of $70,000 may be contributed to a 529 plan, treat the gift as if it were made over a five-year period, and completely avoid gift tax.
Favorable federal estate tax treatment: Plan contributions aren’t considered part of an estate for federal tax purposes. Account owners still retain control of the account, but don’t pay a federal estate tax on the value of the account. But if today’s gift is spread over five years and the account owner dies within the five years, a portion of the gift will be included in the estate.
What is TNStars College Savings 529 Program?
The TNStars College Savings 529 Program is Tennessee’s own 529 program, a program that is designed to make college savings easy. The program offers parents and other relatives a low-cost way to save for children’s college expenses with attractive investment options and special tax advantages.
The plan offers an age-based track where the allocation becomes more conservative as the child approaches college. The plan also offers individual investment options including both domestic and international equities, balanced fund options, fixed income options, and an FDIC insured option. The underlying funds for each of the options are from a range of Fund Companies including Vanguard, DFA, Primecap and First Tennessee Bank. The program offers the products at a competitive fee of 35 basis points. There is no fee for the First Tennessee Interest Bearing Investment Option.
Do I have to have an advisor or financial planner to enroll?
No. The TNStars College Savings 529 Program is a direct-sold 529 plan. As a direct-sold 529 plan you are not required to have an advisor or financial planner to enroll. However, the plan does not provide financial advice, and participants are free to seek financial advice from a professional if they choose to do so.
Is the program available for out-of-state residents?
Yes. The TNStars College Savings 529 Program is open to residents who do not reside in the State of Tennessee; however, the incentives to enroll in the program and to rollover funds into the program may not be available for account owners who do not reside in Tennessee.
Do I have to use the money at Tennessee schools?
No. Monies saved in the TNStars College Savings 529 Program do not have to be used at a Tennessee college or university. The funds may be used at any qualified higher educational institution in the US or abroad that can accept federal financial aid. Visit www.fafsa.ed.gov to search for eligible institutions.
What if my child does not go to college?
If money is saved in the TNStars College Savings 529 Program and the child does not attend school, there are several options available to the account owner. The account owner may choose to defer use of the funds, just in case the child goes to school later. Alternatively, the account owner may transfer the money to another beneficiary who is a member of the family of the original beneficiary. The account owner may take refund of the monies saved; however, refunds or withdrawals that are not used for qualified higher educational expenses are precluded from receiving the favorable tax-free treatment that withdrawals that are used for qualified higher educational expenses receive. If the account owner takes a refund or if a non-qualified withdrawal is made on the account, the recipient of the payment will have to include the earnings as taxable income and pay an additional 10% tax penalty on the earnings.
What expenses are covered?
Qualified higher educational expenses include tuition and fees, books, room and board (on or off campus), and equipment and supplies required for attendance at a qualified higher educational institution. View IRS Publication 970 , and/or consult a tax advisor for more information about the tax treatment of withdrawals from the plan.
Does the beneficiary have to be my child?
No. The beneficiary does not have to be your child, however there is personal information that you must know to enroll in the program such as the beneficiary’s social security number and the beneficiary’s date of birth.
What are the fees associated with the program?
There are no enrollment or front load fees. The program is operated by an amount appropriated to the plan by the State of Tennessee and fees charged to participants. The fee charged to participants is an annual asset based fee. The fee is 35 basis points, which is 35 percent of one percent of the account balance. For example, if the balance in an account is $100, the annual asset based fee collected would be $0.35. Stated differently, the fee is approximately $0.35 for every $100 held in a participant’s account for each beneficiary.
Is the TNStars College Savings 529 Program guaranteed by the State of Tennessee?
The program is not guaranteed by the State of Tennessee or any other entity. There are certain risks associated with investing, including the risk that your account balance may be less than the amount that you deposited into the plan. Please see our disclosure document relative to the risks of investing.
Can I rollover money into the TNStars College Savings 529 Program from another 529 Program?
Yes. You may rollover a portion or your entire account balance from another 529 college savings plan.