| Quick
Answers to Your Questions |
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| Below are some of the most frequently
asked questions about the NC 529 Plan, North Carolina's
National College Savings Program. If you don't find the answer to
your question here, detailed information is available in the Program
Description. For specific individual questions,
ask
an expert. |
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| 1. Does the Account
Beneficiary have to select a college now? |
No. But because college costs vary
widely depending upon the type of school, consider the type
you want to save for - state,
private, community, out-of-state, and so on. That way you can
better plan your current investment strategy to meet college
expenses later. Remember, you can use the money in your Account
to pay expenses at virtually any college anywhere.
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| 2. Are there limits on the
amount I can contribute? |
Yes, there are limits based upon
applicable federal and state tax laws. Currently you can
contribute up to $12,000 per year on behalf of a Beneficiary
without incurring federal gift tax. The North Carolina allowable
limit is $12,000 per Beneficiary per year before incurring North
Carolina gift tax.
For 2008, a maximum of $358,496 per Beneficiary (which aggregates
all Accounts held for the same Beneficiary by any Participant)
can be contributed, but, if the yearly allowable gift maximum is
exceeded, gift taxes may be incurred. This overall amount is referred to
as the Maximum Projected Expenses and is based on four years of
undergraduate and three years of graduate or professional
study at the most expensive institution. The maximum total is
reviewed and adjusted annually.
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| 3. Does North Carolina
offer a tax deduction on contributions to its program? |
Yes, for all North Carolina taxpayers. See Deduction
Details
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| 4. Can others contribute to
my Beneficiary's Account? |
Yes! Anyone can make a contribution to
the Account. Such contributions make wonderful gifts for
birthdays, holidays, and special occasions. Once a contribution
is made, it becomes part of the Participant's Account on behalf
of the Account Beneficiary. Contribution / Gift Form
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| 5. What if my Beneficiary
doesn't use all the money in the Account or decides not to go to
college? Can I use the Account for the college expenses of
someone else? |
Yes. You can change the Beneficiary of
the Account at any time to another child or to someone
else related to your original Beneficiary who plans
to attend college.
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| 6. What are Qualified
Higher Education Expenses? |
These are college expenses such as
tuition, fees, room, and board. Qualified expenses even include such things as
supplies and equipment that the institution requires the student
to obtain as a condition of attendance. Earnings in your Account
are tax free when used for such expenses at an eligible
institution.
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| 7. What if I can't make
Contributions on a regular basis? |
Occasional Contributions are welcome
and there is no yearly account maintenance fee for Accounts.
Accounts with assets too small to be administered economically;
however, may be subject to termination if additional Contributions
are not made. Contributing as much as you can on a regular
basis will help you reach your savings goals.
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| 8. I am an adult and am
thinking of attending college. Can I open an Account for myself? |
Yes! You may be both Participant and
Beneficiary of an Account.
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| 9. What if my Beneficiary
receives a scholarship and doesn't need all the money in the
Account to pay for college? |
No problem! You won't lose access to
your money. Simply request a Withdrawal from the Account in an
amount equal to the scholarship or tuition waiver. The earnings
portion of such withdrawals will be subject to federal and
state income taxes. If a Withdrawal for a scholarship is
requested from the Protected Stock Fund, a 5% surrender charge
will apply.
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| 10. What if I want to
change my investment mix? |
You may change your current
investment mix once each calendar year or if the Beneficiary of
your savings Account changes. You may change how your future
Contributions will be invested at any time.
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| 11. What if, due to
unforeseen circumstances, I need to use the money in my Account
for something other than higher education purposes? |
Unless money is withdrawn for payment
of Qualified Higher Education Expenses for your Beneficiary or
in the case of the Beneficiary's death, permanent disability or
receipt of scholarship, the Withdrawal is considered a
"Non-Qualified Withdrawal." A Participant making a Non-Qualified
Withdrawal must pay federal and state income tax on the earnings
portion of the Withdrawal plus a 10% penalty.
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| 12. Is it possible to
transfer funds from a custodial account to the NC 529 Plan?
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Yes. If you are the custodian of an
account established under the Uniform Gifts to Minors Act (UGMA)
or Uniform Transfers to Minors Act (UTMA), you may transfer cash
proceeds from that account to the NC 529 Plan.
However, the Beneficiary of the new NC 529 Account must be the same as the
beneficiary of the custodial account, because under the rules of
the original account, the beneficiary cannot be changed and will
become the holder of the account at the age of majority. Your
new savings Account also will be subject to the UGMA/UTMA
custodial account terms and conditions and applicable state law.
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| 13. How does a Coverdell
Education Savings Account (formerly an Education IRA) compare
with the NC 529 Plan? |
There are many benefits to the
NC 529 Plan. For example, Coverdell Education
Savings contributions are limited to $2,000 per year until the
child reaches age 18. With the NC 529 Plan,
maximum allowable contributions are not limited by year but by
total Account balance per Beneficiary - which means you can save
as much as you want each year (subject to applicable gift tax)
until total funds for the Beneficiary reach the maximum total
allowable. With a Coverdell Education Savings Account, funds may be treated
as the student's assets for purposes of eligibility for student
financial assistance. There's no danger of that kind of transfer
of "ownership" from Participant to Beneficiary with the NC 529 Plan.
The Participant - the person who sets
up the Account - always controls, or "owns," the funds.
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| 14. How will my college
savings Account impact possible financial aid? |
| Having savings in hand will make it easier
to pay your share of college costs.
Savings in a qualified tuition savings
program are considered the asset of the Participant, not the
Beneficiary. If the Participant is a parent applying for
financial aid to assist in the college expenses of a child who
is the Beneficiary of the savings Account, this is weighted as
the parent's asset. Assets saved in the parent's name currently
reduce eligibility for federal student aid by at most 5.6%,
whereas, the student's assets reduce eligibility by 35%. Savings
investments and their distributed earnings may limit eligibility
for financial aid under existing or future federal, and certain
state and institutional grant, loan and other programs that
assist students and families in college funding. The financial
aid office at the higher education institution you plan to
attend can answer this question in more detail.
While investing in a college savings plan may limit your
eligibility for financial aid, your savings will give you the
financial resources to consider more than just cost in making a
college decision.
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