College Savings Plan Frequently Asked Questions


Q. What are the tax benefits of the plan?

A. The interest earnings are exempt from federal (26 U.S.C. §529) and State of Oklahoma (68 O.S. §2358(D)(16)) taxable income until withdrawn to pay higher education expenses.

Q. What is the minimum contribution?

A. You can open an account with as little as $100. Contributions can be as low as $25.

Q. What can the money be used to buy? Can it be used to buy clothes for the college student, pay for an apartment, buy a car, gas, car insurance, groceries, etc.?

A. Withdrawals can be used to pay tuition, fees, supplies, certain room and board costs, books, and equipment.

Q. Does my child have to attend a four-year public college in Oklahoma?

A. No. Money in the Oklahoma College Savings Plan can be used to pay for college at a two-year or four-year institution, for undergraduate, graduate, or professional education. It can also be used at an approved business, trade, technical or other occupational school, such as a post-secondary vocational technical school. You can attend college anywhere in the country, at a public or private institution, and use the money in the Oklahoma College Savings Plan.

Q. Is there a limit on how much income I can earn and still qualify to open an Oklahoma College Savings Plan Account? How is a Qualified Tuition Savings Plan different from an Education IRA?

A. The Oklahoma College Saving Plan Account is available for people of all income levels. An Education IRA is limited to $500 per year, per child, and there are limits on the income a family can earn and still qualify to open an Education IRA. Additionally, if a contribution is made to the Oklahoma College Savings Plan in a given tax year, no contribution may be made to an Education IRA for that same beneficiary by anyone that same year. If this does occur, the amounts contributed to the Education IRA will be subject to a federal excise tax.

Q. Who can open a plan? Do we have to be relatives? Can several people open separate accounts for the same child?

A. Anyone can open a plan. You do not have to be related to the beneficiary to open a plan for them. You can even open a plan for yourself, your employees, or for a neighbor. Accounts may be opened for the same child by different people. A maximum amount of $235,000  may be contributed for one beneficiary.

Q. Do I have to live in Oklahoma to open a plan? What if I move out of Oklahoma after I open the account? Does my child or grandchild have to live in Oklahoma?

A. You do not have to live in Oklahoma to open a plan, but there are Oklahoma state income tax benefits if you do. If you move out of Oklahoma, you can still use the federal tax benefits. You should consult your tax advisor about the tax consequences of no longer being an Oklahoma resident. The beneficiary, who can be a child, grandchild, niece, nephew, etc., yourself, employees, or even a neighbor, does not have to live in Oklahoma either.

Q. If I open an account for my child, can the child’s grandparents contribute money into that same account? Do they have to open a separate account?

A. The tax advantages for a Qualified State Tuition Plan like Oklahoma’s are available for the account owner. There may be other tax advantages for grandparents to make gifts to the child’s parents, but the tax deferral features of the Oklahoma College Savings Plan are for the account owner.

Q. What taxes are assessed when money is withdrawn to pay for higher education expenses?

A. No taxes are charged by the state or federal government on qualified withdrawals from the Oklahoma College Savings Plan.

Q. Can I deduct the money I contribute into the plan from my taxable income?

A. The Oklahoma College Savings Plan is the only 529 plan with an Oklahoma income tax deduction. Up to $10,000 per taxpayer, $20,000 per married couple, can be deducted each year from Oklahoma taxable income. Also, interest earnings are free from Oklahoma and federal income taxes.

Q. What happens to the contributions and earnings in the plan if my child does not go to college? What if my child does not spend all the money I have saved and the interest I have earned in the College Savings Plan? What if my child receives a full scholarship for college or appointment to one of the United States Military Service Academies?

A. You can change the beneficiary, or leave the money in the account in case your child decides to attend college later. The money can also be used for training at a post secondary vocational technical school. If the funds are distributed due to death, disability, or scholarship award to the beneficiary, the 10% penalty is not levied although the income is subject to state and federal income tax at the owner’s tax rate. Any earnings withdrawn and not used for qualified expenses will be subject to a 10% penalty on the income earned, and is ". . . paid to the Board for use in operating and marketing the program and for state student financial aid." [70 O.S. §3970.7(H)] . This 10% penalty is required by the federal tax laws at 26 U.S.C. §529(b)(3), which requires ". . . a more than de minimis penalty on any refund of earnings from the account. . ." for non-qualified withdrawals. This is in addition to state and federal income tax owed on the income withdrawn.

Q. Can an account be opened at a local bank?

A. No. To help keep down the costs of administration, the Oklahoma College Savings Plan is managed by a nonprofit organization, TIAA-CREF Tuition Financing, Inc.

Q. Who is TIAA-CREF Tuition Financing, Inc.?

A. TIAA-CREF Tuition Financing, Inc., is a part of TIAA-CREF, the Teachers Insurance and Annuities Association, College Retirement Equities Fund which has been in existence for over 80 years. They will serve as the fund manager for the Oklahoma College Savings Plan. They have successfully launched college savings plans in California, Missouri, Kentucky, New York, and Vermont. With more than $250 billion in assets under management, TIAA-CREF is a leading financial services organization and a major institutional investor. TIAA is the Teachers Insurance and Annuity Association, one of only three U.S. firms to hold triple-A ratings from all four major independent analysts of the insurance industry. CREF is the College Retirement Equities Fund, an open-end, diversified management company registered with the federal Securities Exchange Commission. You may learn more about them at on the internet.

Q. What Interest rate will contributions to the plan earn? What types of investments can be made?

A. Examples of the account portfolios are included with the enrollment materials. Call TOLL FREE, 1-877-OK4SAVING (654-7284) to request information. You can also access the official Oklahoma College Savings Plan website at www.ok4saving.org. Click on enroll today, and then select account portfolios to view them on-line. There is a "College Savings Calculator" on the TIAA-CREF web page at " which approximates the cost to send your child to college.

Q. I have an investment account with my stock broker for my child’s college education expenses. Is the Oklahoma College Savings Plan just as good a deal? My daughter is currently a freshman, and her college money is in a mutual fund investment. We are taxed yearly on the earnings. Would it be better to move her college money into the Oklahoma College Savings Plan? Can the money saved in our 401K be transferred to the Oklahoma College Savings Plan.

A. One of the most attractive aspect of The Oklahoma College Savings Plan is that interest on earnings accumulate tax free until withdrawn. The Oklahoma College Savings Plan will have at least one investment option where funds will be invested in stocks/mutual funds. Currently there is no legislation which allows a tax and penalty free transfer from a 401K to the College Savings Plan. Whether the Oklahoma College Savings Plan provides a greater financial benefit for you is something to discuss with your financial advisor.

Q. Isn’t a Roth IRA a better way to save for college? Contributions may be made up to $ 2,000 to a Roth with after tax dollars, which is just like the Oklahoma College Savings Plan, but after five (5) years the money may be distributed tax free.

A. Not necessarily. You must be 59 ˝ to make qualified distributions not subject to taxes from a Roth IRA. There is no age requirement for the account owner in the Oklahoma College Savings Plan to make withdrawals to pay for higher education expenses.

Q. I funded a Uniform Gift to Minors Act account for my grandchild. I put the child’s mother as the trustee. Can this money be converted to the Oklahoma College Savings Plan Act. Can an Educational IRA be converted to the Oklahoma College Savings Plan?

A. Yes. You could convert this money into the Oklahoma College Savings Plan but it is likely that the Internal Revenue Service would tax the money at the time of transition since the law (26 U.S.C. §529) does not currently support a penalty free roll over from a Uniform Gift to Minors Act or an Educational IRA. The benefit of opening an Oklahoma College Savings Plan account is that the funds are limited to paying higher education expenses and if you need the money for yourself you can even take it back. With a Uniform Gift to Minors Act transfer, the money is released to the child at the age of eighteen without any restrictions.

Q. I have purchased U.S. Savings Bonds to save for my child’s college education. Can withdrawals from the Oklahoma College Savings Plan and the U.S. Savings Bonds be used in the same year to pay higher education expenses? Can I redeem the savings bonds, and use the money to open an account in the Oklahoma College Savings Plan?

A. Questions about how to redeem U.S. Savings Bonds and information on the education tax exclusion are available at http://www.savingsbonds.gov on the internet. More specific questions about the tax consequences of the redemption of U.S. Savings Bonds should be discussed with your financial advisor.

Q. How will the money saved in the Oklahoma College Savings Plan affect my child’s ability to qualify for need based financial aid?

A. The money saved in the Oklahoma College Savings Plan account will be considered an asset of the account owner, not the beneficiary. This is because the beneficiary can be changed. Eligibility for federal financial aid is calculated by a formula which considers a percentage of the assets of the student and their parents. For more detailed information, contact a financial advisor.

Q. My child will be a college freshman next year. Is it too late to save? What kind of return can I expect?

A. The different investment options are listed on-line at www.ok4saving.org. As a college freshman, your child may attend college four or more years during which interest on unused contributions will continue to grow. You won’t have a long time to build up an account, but the earnings will still be tax deferred.

Q. Can I open an Oklahoma College Savings Plan account for myself?

A. Yes.

Q. Once money is withdrawn for college expenses, can contributions still be made to the plan? Will my money continue to grow?

A. Contributions can be made after withdrawals. All funds in an account will be invested.

Q. Is this a "prepaid tuition" plan?

A. No.

Q. Do Oklahoma’s public universities and colleges already have prepaid tuition plans?

A. No.

Q. Where can I obtain an application to open an account?

A. Call TOLL FREE, 1-877-OK4SAVING (654-7284) to request information. You can also access the official Oklahoma College Savings Plan website at www.ok4saving.org.

Q. Where can I access more information on the internet?

www.tiaa-cref.org

www.collegesavings.org

 

The Oklahoma College Savings Plan is a way to save for higher education costs. You can learn about other sources of financial aid by calling the Oklahoma State Regents for Higher Education Financial Aid Hotline at 1-800-858-1840.


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Last updated December 15, 2005