An account can be established by an individual, a UGMA/UTMA custodian, certain legal entities, or a trust. There are no income or residency requirements.
Your investment professional can guide you through the steps to get enrolled.
Anyone, including yourself, can be named as a beneficiary. There are no age, income, or residency limitations. Each account can have one designated beneficiary.
Parents, grandparents, other relatives—anyone, really—can contribute to a CollegeCounts 529 Fund account on behalf of the beneficiary.
Contributions to the CollegeCounts 529 Fund are Alabama tax deductible up to:
- $5,000 per Alabama taxpayer;
- $10,000 for married Alabama taxpayers filing a joint return where both taxpayers are making such contributions.
Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.
The plan is very flexible. You can contribute by:
- Sending a check.
- Establishing an automatic investment plan.
- Rolling over funds from another 529 plan.
- Inviting family and friends to make a contribution to your account through CollegeCounts GiftED.
- Establishing payroll contributions at work (check with employer for availability).
- Transferring reward dollars earned with a CollegeCounts 529 Rewards Visa® Card.
Yes. You can complete a rollover form to transfer assets from another 529 plan and gain the benefits of the Alabama state income tax deduction. A same-beneficiary rollover/transfer is allowed once in a 12-month period. Additional transfers are allowed but require a change of beneficiary. For additional information see the Tax Q&A. Check with your investment professional for further assistance with rollovers.
Each year, an independent public accountant selected by the program manager will audit the plan. The auditors will examine financial statements for the plan. The board may also conduct audits of the program and Trust.
No. Many beneficiaries will attend Alabama schools; however, funds may be used at eligible schools nationwide and some foreign schools too.
Any postsecondary educational institution that meets accreditation criteria and is eligible to participate in Federal Student Aid programs is eligible. This includes institutions such as public and private colleges and universities; vocational, trade, technical, and professional institutions; and even some foreign schools. Check out a listing of eligible schools from the Department of Education.
Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services, if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; and certain expenses for special needs services needed by a special needs beneficiary.
Document Qualified Higher Education Expenses
You should retain documentation of all of the designated beneficiary’s qualified higher education expenses for your records because money in your account may be withdrawn free from federal and Alabama state income tax. This should be done only if it is used to pay the designated beneficiary’s qualified higher education expenses. The account owner or designated beneficiary is responsible for determining whether a distribution from an account is a qualified or non-qualified withdrawal and for paying any applicable taxes or penalties. Please be aware, the Internal Revenue Service or state tax officials may subject you to an audit and require proof of the use of withdrawal to pay for the designated beneficiary’s qualified higher education expenses.
Taxable Portion of a Distribution
The part of a distribution representing the amount paid or contributed to a qualified tuition program doesn’t have to be included as income. This is a return of the investment in the plan. The designated beneficiary generally doesn’t have to include any earnings distributed from a qualified tuition program as income, if the total distribution is less than or equal to adjusted qualified education expenses. To determine if total distributions for the year are more or less than the amount of adjusted qualified education expenses, you must compare the total of all qualified tuition program distributions for the tax year to the adjusted qualified education expenses. Adjusted qualified education expenses are the total qualified higher education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes the tax-free part of scholarships and fellowship grants; Veterans’ educational assistance; the tax-free portion of Pell grants; employer-provided educational assistance; and any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
Coordination With American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the designated beneficiary takes a tax-free distribution from a qualified tuition program as long as the same expenses aren’t used for both benefits. This means that after the designated beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.
Coordination With Coverdell Education Savings Account Distributions
If a designated beneficiary receives distributions from a qualified tuition program and a Coverdell Education Savings Account in the same year, and the total of these distributions is more than the designated beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.
Coordination With Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the designated beneficiary takes a tax-free distribution from a qualified tuition program as long as the same expenses aren’t used for both benefits.
In the case of a designated beneficiary who receives a refund for any qualified higher education expenses from an eligible educational institution, the amount refunded will not be subject to federal income tax to the extent it is re-contributed to a 529 plan account for the same designated beneficiary, but only to the extent such re-contribution is made no later than 60 days after the date of such refund and does not exceed the refunded amount. It is the responsibility of the account owner to keep all records of the refunds and subsequent re-contributions. A qualified tax advisor should be consulted to determine your eligibility for this treatment.
If you do not use all the funds in your account – you have a number of options.
- You can leave the funds in the account in the event your beneficiary (or another member of the family) goes back to school at a later date.
- You can change the beneficiary to another member of the family for their college expenses.
- You can withdraw the funds as a nonqualified withdrawal. The earnings portion (not the amount you contributed) is subject to federal and state income taxes and a 10% federal penalty tax. Alabama tax filers: In the event of a nonqualified withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the nonqualified withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the nonqualified withdrawal was distributed. Please consult with your tax professional.