Building Block 2: Open A College & Career Savings Account

529 ACCOUNT

• A 529 account is a type of investment account created to help families save for college and career training.
• The NYC Scholarship Accounts are invested in a 529 account.
• Money in a 529 account can grow over time, but it can also lose value.
• Money in this account grows tax-free, and earnings are tax-free upon withdrawal if used for qualified higher education expenses.
• Many states also have state tax deductions or credits for deposits to 529 accounts.

BANK SAVINGS ACCOUNT

• A savings account at a bank that allows families to save safely at an insured financial institution.
• Interest can be earned on the money deposited into this account. The interest is taxable.
• Deposits in this savings account are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
  • The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.

529 ACCOUNT

• Savings can be used for “qualified higher education expenses” at eligible educational institutions.
• These expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses; and certain expenses for students with special needs. (This includes adaptive equipment such as modified computers or textbooks.)
• Money in this account can be used at most U.S. colleges, universities, graduate schools, and career training programs, and some international ones as well. (In addition, because of recent tax law changes, up to $10,000 per year can be withdrawn from 529 Accounts to pay for a child’s elementary or secondary school (K-12) tuition.)
• A current list of Eligible Educational Institutions can be found here.

BANK SAVINGS ACCOUNT

• The intent of this kind of account is for a child’s college education and not for other purposes.
• However, there are no official restrictions on how savings in this account can be used.

529 ACCOUNT

• You can remove your savings from the account for any reason.
• But, if that money is used for anything other than qualified higher education expenses, the earnings portion of the withdrawal may be taxed as ordinary income and families may incur a 10 percent tax penalty on the earnings.
  • For example, if the account is worth $320, of which $20 is interest earned, only the interest earned ($20) would be subject to federal and state tax (rates vary by individual) and a 10% federal penalty (which would be $2).
• 529 policies vary state by state.
• For example, in some states a withdrawal not used for qualified higher education expenses or a change from one state’s 529 plan to another state’s 529 plan could result in tax or other consequences.
• You can check the specific 529 plan’s website for information.

BANK SAVINGS ACCOUNT

• You can withdraw money from this account for any reason without paying a fee or penalty.

529 ACCOUNT

• Money in the account grows state and federal tax-deferred, meaning earnings do not count toward your taxable income.
• Many states have state tax deductions or credits for contributions to 529 plans.
  • State tax deductions may be subject to recapture in certain circumstances such as rollovers to another state’s 529 plan or nonqualified withdrawals.

BANK SAVINGS ACCOUNT

• None.

529 ACCOUNT

• Check the specific 529 plan’s website for information about how to open an account.

BANK SAVINGS ACCOUNT

• Contact the specific bank for information about how to open an account.

529 ACCOUNT

• Yes, you can usually change the beneficiary on this account to a “member of the family” of the beneficiary, which includes:
  • A son, daughter, stepson or stepdaughter, or a descendant;
  • A brother, sister, stepbrother, or stepsister;
  • The father or mother, or an ancestor of either;
  • A stepfather or stepmother;
  • A son or daughter of a brother or sister;
  • A brother or sister of the father or mother;
  • A son-in-law, daughter-in-law, father-in-law, mother-in- law, brother-in-law, or sister-in-law;
  • The spouse of the beneficiary or the spouse of any individual described above; or
  • A first cousin of the beneficiary.

BANK SAVINGS ACCOUNT

• As the owner of this type of account, you may use the money for any child or purpose.

529 ACCOUNT

• Yes, possibly.
• If your household income is less than $50,000, savings in this account will usually not affect your child’s eligibility for federal financial aid.
• If your household income is greater than $50,000, only a small part of the savings in this account will be counted for federal financial aid eligibility.
• These answers may change in future years. For more detailed information on this question, visit our downloadable resources page for a handout on how the Save for College Program may affect future financial aid.

BANK SAVINGS ACCOUNT

• Yes, possibly.
• If your household income is less than $50,000, savings in this account will usually not affect your child’s eligibility for federal financial aid.
• If your household income is greater than $50,000, only a small part of the savings in this account will be counted for federal financial aid eligibility.
• These answers may change in future years. For more detailed information on this question, visit our downloadable resources page for a handout on how the Save for College Program may affect future financial aid.

529 ACCOUNT

• Yes, possibly.
• Visit our downloadable resources page for a handout on how the Save for College Program may affect your public benefits.
• For more support, contact us.

BANK SAVINGS ACCOUNT

• Yes, possibly.
• Visit our downloadable resources page for a handout on how the Save for College Program may affect your public benefits.
• For more support, contact us.

529 ACCOUNT

• Check the 529 plan’s disclosure materials for information on any fees if you use your savings for higher education.
• If the money is not used for higher education, you could pay federal, state and local income tax plus a 10% federal penalty tax, but only on the interest earned (not on all the savings in your account).
• You also may need to repay the value of state tax deductions previously taken.

BANK SAVINGS ACCOUNT

• Contact the bank for information about any applicable fees to withdraw from your savings.

529 ACCOUNT

• Money you invest could end up growing over time, but you could also lose money based on the economy and financial markets.

BANK SAVINGS ACCOUNT

• Bank savings of up to $250,000 per depositor are protected against loss by the Federal Deposit Insurance Corporation (FDIC).

529 ACCOUNT

• Possibly. If 529 deposits were made at least 720 days before a federal bankruptcy filing, they are fully protected and not available to creditors.
  • As long as the beneficiary on the account is a child, stepchild, grandchild or step grandchild of the account owner who is filing for bankruptcy. Note: a legally adopted child or a foster child is treated as a child by blood.
• If 529 deposits were made between 365 days and 720 days
  before a federal bankruptcy filing, up to $6,225 (adjusted
  for inflation) is excluded from bankruptcy estate and not available to creditors.
  • As long as the beneficiary on the account is a child, stepchild, grandchild or step grandchild of the account owner who is filing for bankruptcy. Note: a legally adopted child or a foster child is treated as a child by blood.
• If deposits were made less than 365 days prior to a federal
  bankruptcy filing, they are considered part of bankruptcy estate and are not protected from creditors.
• In addition to federal bankruptcy protection, some states also provide partial protection from creditor claims for 529 deposits.

BANK SAVINGS ACCOUNT

• No.

529 ACCOUNT

• Carefully read and understand the materials provided by the
  529 plan, including disclosure documents, before signing up for this account.

BANK SAVINGS ACCOUNT

• Carefully read and understand the materials provided by the bank before signing up for this account.