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income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn.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.
Certain sections of the Alabama income tax statute refer to definitions in Code Section 529, as amended, including the definition of “Qualified Higher Education Expenses.” For years after 2017, amendments to Code Section 529 treat withdrawals for tuition in connection with enrollment or attendance at an elementary or secondary school, whether public, private or religious, with a limit of $10,000 per year, per child collectively from all 529 plans to be “Qualified Higher Education Expenses.” Consequently, a Designated Beneficiary may be able to use the amounts in a Plan Account to pay for K-12 Tuition Expenses (as defined in the Program Disclosure Statement) without incurring adverse tax consequences. However, the Act (which has not been amended since adoption of the Code Section 529 amendments referred to above) only covers expenses at “eligible educational institutions.” The definition of this term in Code Section 529 does not appear to cover K-12 schools, although Internal Revenue Service Publication 970 provides that an “eligible educational institution” “can be either an eligible postsecondary school or, for amounts paid from distributions made after December 31, 2017, an eligible elementary or secondary school.” Publication 970 does not have the same authority as Code Section 529.
The Program recommends that taxpayers seek tax advice from an independent tax advisor with respect to their ability to use the Program to pay K-12 Tuition Expenses without incurring adverse tax consequences.
Federal Law Change (December 20, 2019). The Federal Consolidated Appropriations Act (2020) was signed into law by the President. It includes several new provisions related to 529 college savings accounts, effective for distributions made after December 31, 2018:
DISTRIBUTIONS FOR CERTAIN EXPENSES ASSOCIATED WITH REGISTERED APPRENTICESHIP PROGRAMS. Qualified higher education expenses shall include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50).
DISTRIBUTIONS FOR QUALIFIED EDUCATION LOAN REPAYMENTS. Qualified higher education expenses shall include amounts paid as principal or interest on any qualified education loan (as defined in section 221(d) of the Internal Revenue Code) of the designated beneficiary or a sibling (as defined in section 152(d)(2)(B) of the Internal Revenue Code) of the designated beneficiary. The amount of distributions treated as a qualified higher education expense under this paragraph with respect to the loans of any individual shall not exceed $10,000 (reduced by the amount of distributions so treated for all prior taxable years).
Please consult with your financial, tax and other advisor to learn more about how the federal law changes and state-based benefits (including any limitations) would apply to your specific circumstances.
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.
If you receive a refund from an Eligible Educational Institution for Qualified Higher Education Expenses that were paid from money withdrawn from your Account, you can:
- Pay for Other Qualified Higher Education Expenses – you can use the funds to pay other Qualified Higher Education Expenses incurred by that Beneficiary in the same calendar year.
- Recontribute Refunded Amounts to a 529 Account – if a student receives a refund of Qualified Higher Education Expenses that were treated as paid by a 529 distribution, the student can recontribute these amounts into any 529 account for which they are the beneficiary within 60 days after the date of the refund. The amount recontributed cannot exceed the amount of the refund.
- EXTENSION OF TIME – for refunds made on or after February 1, 2020 and prior to May 16, 2020 the IRS has extended the time to recontribute funds to the greater of 60 days or July 15, 2020.
You should consult with your financial, tax or other advisor regarding your individual situation.
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.