IVY INVESTED Frequently Asked Questions
The Ivy InvestEd℠ 529 Plan is a tax-advantaged education savings plan designed to help prepare for future education goals.
Q. How can account funds be used for education needs?
A. All withdrawals are federal income tax-free if they are applied to qualified higher education expenses, such as tuition, books, fees, computers and other related equipment (including internet and computer software) and room and board. The change in tax code due to the Tax Cuts & Jobs Act of 2017 expanded the benefits of 529 plans to allow for federally tax-free distributions for tuition at eligible public, private and religious K-12 institutions up to $10,000 per student per tax year. States may offer some tax breaks such as a deduction for contributions or income exemption on withdrawals. This information is based on current tax laws, regulations, rules and interpretations, which are subject to change at any time. Please consult a tax advisor regarding individual circumstances.
Q. What if the designated beneficiary receives a scholarship?
A. If the child or designated beneficiary receives a scholarship for higher education, the account owner may withdraw an equal amount from the Ivy InvestEd 529 Plan. Although the account owner would pay taxes on the earnings portion of the withdrawal, there would be no federal tax penalties associated with the withdrawal. Withdrawal amounts that exceed the amount of the scholarship that are NOT used for qualified higher education expenses of the designated beneficiary will be subject to income taxation on the earnings portion. An additional 10% federal penalty on the earnings may be incurred.1 The taxes will generally be applied at the tax rate of the person for whose benefit the withdrawal is made.
Q. What if the designated beneficiary decides against using account funds for education needs?
A. One of the advantages of 529 plans is that account owners can change beneficiaries without penalty. If the child chooses not to use account funds for education needs, the account owner can change beneficiaries without penalty, as long as the new designated beneficiary is a member of the original designated beneficiary’s family, as defined by the tax laws. If the account owner chooses to withdraw the money he/she had accumulated in the Ivy InvestEd 529 Plan account for non-qualified expenses instead of passing it onto a new designated beneficiary, the earnings portion of the non-qualified withdrawal generally will be subject to income tax at the tax rate of the person for whose benefit the withdrawal is made. In addition, a 10% penalty on the earnings will apply.2
Q. Does the Ivy INVESTED 529 Plan offer estate-planning benefits?
A. Contributions to an Ivy InvestEd 529 Plan account are generally excluded from the donor's taxable estate for federal tax purposes (assuming the donor is not the beneficiary). Thanks to the annual $15,000 gift tax exclusion ($30,000 in the case of a married couple), it is possible for grandparents, other relatives and friends to contribute substantial amounts to an account without incurring any gift tax. An election can be made (on the federal gift tax return) to spread up to $75,000 ($150,000 for married couples) to each beneficiary and spread the contribution over five years for gift tax purposes, as long as they do not make additional contributions to the same beneficiary during that five-year period. Please remember that if the contributor dies before the end of the five-year period, the portion of the gift allocable to the years remaining in the five-year period would be in the contributor’s estate for federal estate tax purposes. Consult your CPA or other tax advisor regarding the impact of gift, estate, and other tax consequences.
Q. If a person is invested in another 529 plan, can he/she transfer the account to an Ivy INVESTED 529 Plan?
A. Yes, transferring from one 529 plan to another requires completing a 529 Plan Transfer Request Form. The account owner may generally roll over an account without limit if the new account appoints a new designated beneficiary. In addition, the account owner may roll over an account with the same designated beneficiary one time during a 12-month period.3
Q. Are the Ivy INVESTED 529 Plan investments guaranteed?
A. No. Investments into 529 plans, including the Ivy InvestEd 529 Plan, are not guaranteed by the State of Arizona, the Arizona Commission for Postsecondary Education, Waddell & Reed, Inc., Ivy Distributors, Inc., or any affiliated or related party. All investments involve a certain degree of risk. The value of an Ivy InvestEd 529 Plan account will depend upon the performance of the investment portfolios in which the account is invested and will fluctuate. It is possible that the value of the account may be less than the amount originally invested.
To become more familiar with the risks involved in investing in the Ivy InvestEd 529 Plan, please carefully review the Ivy InvestEd 529 Plan information contained in this section, including the Ivy InvestEd 529 Plan Program Overview and the Ivy Invested Portfolios Prospectus.
Q. Can the account owner still contribute to a designated beneficiary’s Coverdell Education Savings Account?
A. Yes. Account owners can contribute to both a Coverdell Education Savings Account and a 529 plan in the same year for the same designated beneficiary without penalty, subject to contribution limits.
Q. Does the account owner have to select a college, university, technical school, etc. now?
A. No, but the account owner may want to consider the type of post-secondary education the designated beneficiary plans to pursue. This may be of assistance in determining the amount the designated beneficiary may need for qualifying expenses.
Q. Can account owner borrow money against the Ivy InvestEd 529 Plan account?
A. No. Interest in the account may not be pledged as security for any kind of loan.
Q. Can the account owner borrow money against my Ivy INVESTED 529 Plan account?
A. No. Interest in the account may not be pledged as security for any kind of loan.
Q. Can the account owner and his/her spouse set up a joint account?
A. No. One person must establish each Ivy InvestEd 529 Plan account; however, anyone may contribute to the plan once it is established. For example, parents, grandparents, other relatives and friends may pool contributions in one designated beneficiary's account. Although only one person may be indicated as the account owner, a successor account owner should be designated on the Ivy InvestEd 529 Plan account application in the event of the account owner's death.4
Q. Can organizations establish Ivy INVESTED 529 Plan scholarship programs?
A. Not-for-profit entities, such as 501c(3) organizations and state and local governments have the ability to set up scholarship accounts within the Ivy InvestEd 529 Plan. There are many reasons that not-for-profit entities may find Ivy InvestEd 529 Plan scholarship accounts attractive. No designated beneficiary is named at the time a scholarship account is set up. In addition, there’s no maximum contribution limit. At the time the scholarship is awarded, the organization simply completes a transfer of ownership form for the portion of the account they wish to grant to any given recipient. This recipient must use the money for higher education expenses.
Q. Who manages the Ivy INVESTED 529 Plan?
A. The Ivy InvestEd 529 Plan is offered by Waddell & Reed, Inc. as program manager of the Arizona Family College Savings Program Trust Fund, a 529 plan administered by the Arizona Commission for Postsecondary Education (the Program”). Waddell & Reed, Inc. is one of multiple financial institutions eligible to offer investments under the Program. InvestEd Portfolios are managed by Ivy Investment Management Company and are distributed by Waddell & Reed, Inc. Ivy mutual funds are managed by Ivy Investment Management Company and are distributed by Ivy Distributors, Inc., an affiliate of Waddell & Reed, Inc.
Q. Is there a minimum amount the account owner must invest to open an Ivy INVESTED 529 Plan account?
A. To open an Ivy InvestEd 529 Plan account, the minimum initial investment is $250 per fund, and subsequent investments do not have a limit. To establish an account with an automatic monthly investment or Automatic Investment Service (AIS), the initial opening account minimum is $150 per fund, and subsequently, a minimum of $50 per month. To establish an account through payroll deduction or salary deferrals, there are no account minimums. As with any investment, there can be no assurance that periodic purchases using AIS will produce a profit or protect against
investment loss in declining markets. An account owner may open accounts with cash equivalents. Redemptions from other accounts may be taxable transactions.
Q. How does the account owner make a withdrawal from an Ivy INVESTED 529 Plan account?
A. An account owner may withdraw money from an Ivy InvestEd 529 Plan account by completing the appropriate forms. Withdrawals will be classified as either qualified or non-qualified. A qualified withdrawal is a withdrawal used for “qualified higher education expenses,” which may include tuition, fees, books, supplies, computers and other-related equipment such as Internet and computer software required for the enrollment or attendance of a designated beneficiary at an eligible educational institution. The term also includes qualified room and board expenses for students who attend an eligible educational institution at least half time. Tax-free distributions for tuition at private and/or religious institutions (K-12) up to $10,000 per student per tax year are also considered qualified withdrawals (state and local taxes may apply).
A non-qualified withdrawal is a withdrawal that is not used for qualified higher education expenses or tuition at private and/or religious institutions (K-12). Non-qualified withdrawals are generally subject to income taxes on the earnings portion of the withdrawal and an additional federal tax penalty of 10% on the earnings. The account owner may also make penalty-free withdrawals if the designated beneficiary receives a scholarship, dies or becomes permanently disabled. There would be a tax on the earnings portion of this type of withdrawal. Please consult a tax advisor for more information about individual circumstances. To make a withdrawal from an Ivy InvestEd 529 Plan account, the account owner must complete an Ivy InvestEd 529 Plan Withdrawal Form.
1. The earnings portion of any non-qualified withdrawals (i.e., generally those not used for qualified higher education expenses) is subject to a federal tax and possibly state tax. In addition, the earnings portion of a non-qualified withdrawal is subject to an additional federal penalty in the form of an additional 10% tax on the earnings portion of the withdrawal. The 10% penalty does not generally apply to certain distributions made after the death or disability of the designated beneficiary or after the receipt of certain scholarships.
2. There may be federal gift or generation skipping transfer tax consequences if the new designated beneficiary is a member of a younger generation than the prior designated beneficiary.
3. Although the U.S. Department of Education has advised several 529 plans regarding the treatment of accounts in 529 plans for financial aid purposes, the treatment is subject to change by regulations, legislation or otherwise. Specific educational institutions may also treat 529 plan investments in a different manner. Accounts for which the designated beneficiary is also the account owner may be treated as if it were an asset of the parent for financial aid purposes.
4. The tax treatment and state law probate treatment of the designation of a successor account owner and the transfer of ownership to such successor is not certain and may vary depending on the particular facts and state law involved.
Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the Ivy InvestEd 529 Plan. This and other information is found in the InvestEd Portfolios prospectus, and the Ivy Funds prospectus, the Ivy InvestEd 529 Plan Program Overview, and the InvestEd 529 Plan Account Application. All of these items are available from these links or from a financial advisor. Please read the prospectus carefully before investing.
Before investing, non-residents or tax-payers of states other than Arizona should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors than those offered under the Ivy InvestEdSM 529 Plan. Please consult your tax advisor regarding your personal tax situation.
The Ivy InvestEd 529 Plan and shares of InvestEd Portfolios are offered by Waddell & Reed, Inc. as part of the Arizona Family College Savings Program Trust Fund, a 529 plan administered by the Arizona Commission for Postsecondary Education (the “Program”). Waddell & Reed, Inc. is one of multiple financial Institutions eligible to offer Investments under the Program. Accounts a not insured by the State of Arizona, the Trust, the Arizona Commission for Postsecondary Education, or any other governmental entity, Waddell & Reed, Inc., Ivy Distributors, Inc., or any affiliated or related party, and neither the principal deposited nor the Investment return is guaranteed by any of the referenced parties.
Past performance is not a guarantee of future results. Investments into a 529 plan, including the Ivy InvestEd 529 Plan, are not guaranteed, and all investments involve a certain degree of risk. The value of your Ivy InvestEd 529 Plan account will depend upon the performance of the portfolios in which your account is invested and will fluctuate. It is possible that the value of your account may be less than the amount you invested.
The information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to assist in the understanding the issues discussed. Neither Waddell & Reed, Inc. nor Ivy Distributors, Inc., nor their associates offer tax, legal, or accounting advice. You may want to consult with your accountant or tax advisor to discuss your personal situation. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance.