California 529 Plan ScholarShare: California College Savings Plan Basics

While we are providing general information about the California 529 plan, please consult the Plan Description and Participation Agreement for more detailed information and facts about the plan.

California 529 Plan Benefits and Tax Advantages

Funds you invest in a 529 plan grow tax-deferred. And funds that the student eventually withdraws from the plan towards qualified educational costs are free from federal taxes.

A common misconception is that these 529 plan assets will disqualify your child from financial aid. On the contrary, 529 plan funds are treated more favorably in the financial aid formula than other savings in your child’s name through a custodial account such as an UTMA/UGMA. This is because assets in a child’s 529 plan belong to the parent not child, and FAFSA (Free Application for Federal Student Aid) gives preferential tax treatment to assets belonging to a student’s parent versus the student.

If your child is an Einstein or football star, and manages to score a free ride to school, you can still repurpose those funds. You can take out an amount equal to the scholarship fund amount from the 529 plan without incurring the 10% federal penalty you’d normally have to pay on funds not going to qualified education costs. You would have to pay regular ordinary income taxes on earnings, but there would be no penalty. Alternatively, you can leave the funds in the 529 plan to be used at a later date by this beneficiary or a direct relative of the original beneficiary.

And for many, a 529 plan can be used to transfer wealth. Contributing to a 529 plan lets grandparents or other contributors reduce the size of their taxable estate while helping them fund a grandchild’s or family member’s education. It’s even possible to make five years worth of contributions in a single year up to $75,000 (or $150,000 for married couples) and still get the gift tax exclusion. Before making any gifts for tax purposes, including the lifetime gift tax exclusion, consult a qualified tax professional.

California State Specific 529 Plan ScholarShare

California offers the California’s ScholarShare College Savings Plan (or ScholarShare 529 plan). It offers a variety of investment options from TIAA-CREF, T. Rowe Price, and others.

This is a strong state plan due to its low fees at only 0% – 0.53% and high maximum contribution at $529,000. It offers a variety of investment opportunities, including age-based portfolios and static investments. Both options include different investment options based on your needs.

TIAA-CREF Tuition Financing, Inc. serves as the Program Manager and Program Distributor. The ScholarShare Investment Board (SIB), chaired by the State Treasurer, is state agency of record.

California 529 ScholarShare Plan Details

Program Type	Savings
Created	1999
State Agency	The ScholarShare Investment Board (SIB) chaired by the State Treasurer
Tax deduction	None for single filers None for joint filers
Program Manager	TIAA-CREF Tuition Financing, Inc. (TFI)
Program distributor	TIAA-CREF Tuition Financing, Inc. (TFI)
Maximum contributions	Accepts contributions until all account balances in California’s 529 plans for the same beneficiary reach $529,000.
Minimum contributions	Any dollar amount
E-gifting platform	Yes
Enrollment or application fee	None
Account maintenance fee	None
Program management fee	0.06% (includes 0.05% state fee) for Active and Social Choice Portfolios; 0.01% for Passive and Index Portfolios (no state fee); None for the Principal Plus Interest Portfolio.
Expenses of the underlying investments	Ranges from 0.17% to 0.47% for Active and Social Choice Portfolios; 0.05% to 0.17% for Passive and Index Portfolios; None for the Principal Plus Interest Portfolio.
Total asset-based expense ratio	0.06% – 0.53%. None for the Principal Plus Interest Portfolio

Who can have a California 529 ScholarShare college savings plan?

Typically we think of 529 college savings plans being set up by parents (or grandparents) for minor children so they can continue their post-secondary education.

But any U.S. resident age 18 or older, with a social security number, can open and fund a 529 plan. They can designate any beneficiary they choose, including themself. This could be a great option for an adult to go back to school, change career paths, or get some further training.

Is a ScholarShare 529 plan tax deductible in California?

California does not offer a state tax deduction or credit on 529 plan contributions. 529 plans are a tax-advantaged way to save for college. Your investment growth is tax-deferred and withdrawals are free from state and federal taxes when used for qualified education expenses.

What happens to a California 529 ScholarShare Plan if not used?

There is no time in which the funds within a California 529 plan need to be withdrawn. Unused funds can remain in the account and continue to grow tax-deferred. The account owner may also choose to change the beneficiary, without penalty, to an individual who is a member of the original beneficiary’s family and a United States citizen. However, this is not limited to your immediate family, and can include cousins, nieces, nephews, or other close relatives. The account owner can close the account if not used, but will be subject to federal and state income tax as well as a 10% penalty on the account earnings. There are exceptions to the penalty such as death, disability, etc.

And as outlined earlier, 529 plans also allow the account owner to withdraw the amount a beneficiary receives in scholarships without incurring the 10% penalty.

Can a ScholarShare Plan lose money?

Yes. A 529 plan is an investment plan with different types of investment options. The investment options offer different levels of market risk.

Do I need a ScholarShare Plan for every child?

You don’t need a California 529 plan for each child but you may find it easier to administer if you do. You can only have one named beneficiary on a California 529 plan. The risk and mix of equities to fixed income of certain investment options is determined by the age of the beneficiary. For this reason, you may want to have a different 529 plan for each child.

You may be interested to know that multiple people can open accounts for the same beneficiary.

Can a California 529 plan be used to pay off student loans, apprenticeships and K-12 private schools?

K-12 withdrawals are limited to $10,000 per year for K-12 tuition. Apprenticeship programs must be registered and certified with the Secretary of Labor under the National Apprenticeship Act. Student loan repayment subject to a lifetime limit of $10,000 per individual when using a 529 plan.

Withdrawals for tuition expenses at a public, private or religious elementary, middle, or high school can be withdrawn free from federal tax. For California taxpayers these withdrawals are subject to state income tax and an additional 2.5% California tax. You should talk to a qualified professional about how tax provisions affect your circumstances.

Withdrawals for registered apprenticeship programs and student loans can be withdrawn free from federal and California income tax. If you are not a California taxpayer, these withdrawals may include recapture of tax deduction, state income tax as well as penalties. You should talk to a qualified professional about how tax provisions affect your circumstances.

How does financial aid affect a California 529 ScholarShare plan?

A 529 plan can affect financial aid, but the impact is dependent on the account owner and not on the beneficiary.

If the account is held by the parent or guardian of the student, funds within are considered parental assets. Approximately the first $10,000 of parental assets do not affect the Expected

If the account is held by the parent or guardian of the student, funds within are considered parental assets. The Expected Family Contribution (EFC) calculation for parent assets is a maximum of only 5.64% versus 20% for the students assets. However, if the 529 plan is held by a grandparent or extended family member, while the assets are not taken into account for the FAFSA EFC, distributions from these accounts qualify as student income, which is assessed at 50%.

529 accounts do not affect merit-based scholarships. Other scholarships may depend based on the school.

California 529 ScholarShare Contact

Website	http://www.scholarshare.com
Telephone	1-800-544-5248
Twitter	http://twitter.com/scholarshare529
Facebook	https://www.facebook.com/scholarshare529/

Start Saving Towards a California 529 ScholarShare Plan

A 529 plan is a savings plan that helps families save for future qualified higher education expenses. This money can be applied to in-state schools or out of state schools, public or private institutions. Unlike a traditional savings account or bank account your money grows tax-deferred in a 529 account and qualified distributions are federal tax and state tax free. There are different plans to choose from that have different benefits and investment options, and often you are not limited to the state that you live in. In the state of California, for example, California residency is not required for investment.

The contribution limit is generous. Each year, you can contribute up to $15,000 (or $30,000 for married couples who are splitting gifts) to a 529 plan for each beneficiary without triggering federal gift tax restrictions.

When the beneficiary goes on to college or vocational school, they can withdraw funds from the account balance tax-free. They won’t have to pay taxes on funds they take out from the plan account, as long as the funds go to qualifying educational expenses like tuition, books, and related supplies.

Check out these College Savings: 529 Plan Basics by State

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