Q. What if my child (or Designated Beneficiary) receives a scholarship?
A. If your child or designated beneficiary receives a scholarship for higher education, the account owner may withdraw an equal amount from your Ivy InvestEd 529 Plan. Although you would pay taxes on the earnings portion of the withdrawal, you would have no federal tax penalties associated with the withdrawal. Withdrawal amounts that exceed the amount of the scholarship that you DON'T use for qualified higher education expenses of the designated beneficiary will be subject to income taxation on the earnings portion. You may also incur an additional 10% federal penalty on the earnings.1 The taxes will generally be applied at the tax rate of the person for whose benefit the withdrawal is made.
Q. What if my child doesn't go to college?
A. One of the advantages of 529 plans is that account owners can change beneficiaries without penalty. If your child chooses not to go to college, you 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.2 If you choose to withdraw the money you have accumulated in your 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 the Ivy InvestEd 529 Plan can generally be excluded from your taxable estate because the government considers them as completed gifts for federal gift and estate tax purposes. Account owners can contribute up to $65,000 (or $130,000 per couple filing jointly) without gift tax consequences if an election is made by the account owner to treat the gift as a contribution made in equal payments over a five-year period. If the election is made, gifts made by the account owner to the designated beneficiary during the five-year period may not exceed $65,000 without federal gift tax consequences. To qualify, the account owner will need to file IRS Form 709 to treat the gift as if it were made in equal payments over a five-year period. In addition, if the account owner 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 included in the account owner's estate for estate tax purposes.The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency or purpose for or timing of distributions. Taxes are deferred until withdrawal. The earning portion of a non-qualified withdrawal is subject to a 10% penalty as well as federal and/or state taxes.
Q. I'm invested in another 529 plan. Can I transfer my account to an Ivy InvestEd 529 Plan?
A. Yes, transferring from one 529 plan to another requires completing a 529 Plan Transfer Request Form. You may generally roll over an account without limit if the new account appoints a new designated beneficiary.3 In addition, you may roll over an account with the same designated beneficiary one time during a 12-month period.
Q. Are the Ivy InvestEd 529 Plan investments guaranteed?
A. No. To become more familiar with the risks involved in investing in the InvestEd 529 Plan, please carefully review the InvestEd 529 Plan information contained in this section, including the InvestEd 529 Plan Program Overview, the Ivy InvestEd Portfolios prospectus, and the Ivy Funds prospectus
Q. Can I still contribute to my 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. Do I have to select a college now?
A. No, but you 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 I 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 my spouse and I 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 (the "Program"). Waddell & Reed, Inc. is one of multiple financial institutions eligible to offer investments under the Program. The Ivy InvestEd Portfolios are managed by Waddell & Reed Investment Management Company, while the Ivy Funds are managed by Ivy Investment Management Company, both of which are affiliates of Waddell & Reed, Inc.
Q. Is there a minimum amount I must invest to open an Ivy InvestEd 529 Plan account?
A. To open an Ivy InvestEd 529 Plan account, the minimum initial investment is $750 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. You may open accounts with cash equivalents. Redemptions from other accounts may be taxable transactions.
Q. How do I make a withdrawal from my 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 and equipment required for the enrollment or attendance of a designated 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. A non-qualified withdrawal is a withdrawal is not used for qualified higher education expenses. 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. You 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 your tax advisor for more information about your individual circumstances. To make any withdrawal from your Ivy InvestEd 529 Plan account, you 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.
Investors should consider the investment objectives, risks, charges and expenses associated with the Ivy InvestEd Plan carefully before investing. 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 Ivy InvestEd 529 Plan Account Application. Please encourage your clients to read the prospectus carefully before investing. An investor should also consider, before investing whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's 529 college savings plan.
Investment return and principal value will fluctuate, and it is possible to lose money by investing.
The Ivy InvestEd 529 Plan is offered by Waddell & Reed, Inc. as part of the Arizona Family College Savings
Program (the "Program"). Waddell & Reed, Inc. is one of multiple financial institutions eligible to offer
investments under the Program. Accounts are not insured by the State of Arizona, the Trust, the Arizona
Commission for Postsecondary Education, or any other governmental entity, Waddell & Reed, Inc., or any
affiliated or related party, and neither the principal deposited nor the investment return is guaranteed by any
of the above referenced parties.
The Ivy InvestEd Portfolios are managed by Waddell & Reed Investment Management Company, while the Ivy Funds are
managed by Ivy Investment Management Company, both of which are affiliates of Waddell & Reed, Inc. InvestEd
Portfolios and the Ivy Funds are distributed by Waddell & Reed, Inc., and Ivy Distributors, Inc.,