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InvestEd 529 Plan- Frequently Asked Questions

We know that making the final decision about funding your family's education may be difficult. To help in that decision, we've compiled some of the most frequently asked questions.

What if my child (or beneficiary) receives a scholarship?
What if my child doesn't go to college?
Does the InvestEd Plan offer estate-planning benefits?
I'm invested in another 529 plan. Can I transfer my account to InvestEd 529 Plan?
Are the InvestEd 529 Plan investments guaranteed?
Can I still contribute to my beneficiary's Coverdell Education Savings Account?
Do I have to select a college now?
Can I borrow money against my InvestEd account?
Can my spouse and I set up a joint account?
Can organizations establish InvestEd scholarship programs?
Who manages the InvestEd Plan?
Is there a minimum amount I must invest to open an InvestEd account?
How do I make a withdrawal from my InvestEd account?

What if my child (or beneficiary) receives a scholarship?

If your child or beneficiary receives a scholarship for higher education, you can withdraw an equal amount from your InvestEd Plan. Although you would pay taxes on the earnings portion of the withdrawal, you would have no 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 beneficiary will be subject to income taxation on the earnings portion. You also incur an extra 10 percent 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.

What if my child doesn't go to college?

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 beneficiary is a member of the original beneficiary's family, as defined by the tax laws.²

If you choose to withdraw the money you have accumulated in your InvestEd account for nonqualified expenses instead of passing it onto a new beneficiary, the earnings portion of the nonqualified 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 percent penalty on the earnings will apply.²

Does the InvestEd Plan offer estate-planning benefits?

Contributions to the InvestEd Plan can generally be excluded from your taxable estate because the government considers them as completed gifts for federal gift and estate tax purposes.

Contributors can gift up to $65,000 (or $130,000 per couple) without gift tax consequences if an election is made by the contributor to treat the gift as having been made over a five-year period. If the election is made, gifts made by you to the beneficiary during the five-year period may not exceed $65,000 without federal gift tax consequences. To qualify, you will need to file IRS Form 709 to treat the gift as if it were made in equal payments over five years.

In addition, 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 included in the contributor'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.

I'm invested in another 529 plan. Can I transfer my account to InvestEd 529 Plan?

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 beneficiary.² In addition, you may roll over an account with the same beneficiary once in a 12-month period.

Are the InvestEd 529 Plan investments guaranteed?

No. To become more familiar with the risks involved in investing in the InvestEd, please carefully review the InvestEd Plan information contained in this section, including the InvestEd Program Overview, the Waddell & Reed InvestEd Portfolios, Inc. prospectus, and the Ivy Funds prospectus.

Can I still contribute to my beneficiary's Coverdell Education Savings Account?

Yes. Account owners can contribute to both a Coverdell Education Savings Account and a 529 plan in the same year for the same beneficiary without penalty, subject to contribution limits.

Do I have to select a college now?

No, but you may want to consider the type of post-secondary education the beneficiary plans to pursue, because this will decide what educational institution the beneficiary may apply to and, therefore, what amount the beneficiary needs for expenses.

Can I borrow money against my InvestEd account?

No. No interest in the account may be pledged as security for any kind of loan.

Can my spouse and I set up a joint account?

No. One person must establish each InvestEd account however; anyone may contribute to the plan once it's set up. For example, parents, grandparents and other relatives and friends may pool contributions in one beneficiary's account. Although you may list only one person as the account owner, you should designate a successor account owner on the InvestEd account application in the event of the account owner's death.⁴

Can organizations establish InvestEd scholarship programs?

Not-for-profit entities, such as 501c(3) organizations and state and local governments have the ability to set up scholarship accounts within the InvestEd Plan. There are many reasons that not-for-profit entities may find InvestEd scholarship accounts attractive. No beneficiary has to be 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.

Who manages the InvestEd Plan?

The InvestEd 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. The Waddell & Reed InvestEd Portfolios, Inc. 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.

Is there a minimum amount I must invest to open an InvestEd account?

To open an InvestEd account, you must make a minimum initial investment of $500. Or, you can open an InvestEd account with as little as $50 if the account is set up with an automatic monthly investment using our Automatic Investment Service (AIS).

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.

How do I make a withdrawal from my InvestEd account?

An account owner may withdraw money from an InvestEd 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 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 you don't use 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 percent of the earnings.

You may also make penalty-free withdrawals if the beneficiary receives a scholarship, dies or becomes permanently disabled, although 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 InvestEd account, you must complete an InvestEd Plan Withdrawal Form.

What's an "eligible educational institution"?

An eligible educational institution is defined by federal law, but generally includes college or graduate schools and post-secondary vocational or trade schools. The institution must be eligible for withdrawals to be considered qualified.

¹The 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 percent tax on the earnings portion of the withdrawal. The 10 percent penalty does not generally apply to certain distributions made after the death or disability of the beneficiary or after the receipt of certain scholarships.

²There may be federal gift or generation skipping transfer tax consequences if the new beneficiary is a member of a lower generation than the prior beneficiary.

³Although 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 beneficiary is also the account owner may be treated as an asset of the beneficiary for financial aid purposes.

⁴The 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 InvestEd Plan carefully before investing. This and other information is found in the Waddell & Reed InvestEd Portfolios, Inc. prospectus, and the Ivy Funds prospectus, the InvestEd Program Overview, and the InvestEd Account Application, all of which can be obtained from your financial advisor. Please read these materials 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 InvestEd 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 Waddell & Reed InvestEd Portfolios, Inc. 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. Waddell & Reed InvestEd Portfolios and the Ivy Funds are distributed by Waddell & Reed, Inc., and Ivy Funds Distributor, Inc., respectively.