College Savings Checklist
It is important to research college savings options carefully, just as
you would research any investment opportunity. The following are a
few of the many questions you should ask about any college savings
option before investing.
- What are the fees? Is there an enrollment fee or sales charge?
What are the annual expenses (management fees)? Is there a redemption
fee or a back-end sales charge?
- Is the return on investment guaranteed? If not, ask for historical
return data, but remember that past performance is not necessarily
indicative of future earnings. If the return is guaranteed, who is
making the guarantee? Is it backed by the full faith and credit of the
state, the federal government, the Federal Deposit Insurance
Corporation (FDIC) or some other entity?
- Does the plan offer an investment that has returns indexed to
increases in tuition or inflation? Is the return based on actual
tuition increases, state average increases, the increases at a
specific school (e.g., the most expensive public college in the
state), or a projected increase?
- What is the historical return on investment? Is the plan likely to
continue with a similar return on investment in the future?
- Does the plan offer age-based, risk-based, and protected principal
- Can you change the investment strategy? If so, how frequently can
you change the investment strategy?
Contribution and Investment Limits
- Are there annual and cumulative contribution limits? What is the
- What is the minimum investment?
- What are the payment options, such as lump sum, monthly
installment, charging a credit card, payroll deduction, and electronic
funds transfer (EFT)?
- Who is eligible to participate in the plan? Must the student (or a
parent) be a state resident? What if you move out of state? What
happens if the family moves out of state but the child still attends a
- Who can make contributions to the account? Can grandparents and
friends of the family contribute, or just the parents?
- Are there any age restrictions? Are there age restrictions on when
you can open an account (i.e., before the 9th grade) or when you can
contribute (i.e., until age 18)? Are there age restrictions on when
the funds must be used (i.e., until age 30 or until 10 years after
high school graduation)?
Distributions and Qualified Expenses
- What happens if the child decides to not go to college?
- What happens if the child receives a scholarship from the school?
- Is access to the savings controlled by the account owner or the
student? Are there any restrictions on how the money can be spent?
- Which schools participate in the plan? Do I have to name a
particular school or set of schools when opening an account?
- What happens if the child goes to an out of state school? If the
program is limited to public colleges, what happens if the child
attends a private college?
- What expenses does the plan cover? Does it include just tuition
and fees or does it also include room and board? Can you use the plan
for non-included expenses, and if so, what are the penalties?
- Can the investment in the plan be cancelled? If so, how is the
amount of the refund calculated?
- How do you redeem the plan or withdraw funds when your child
matriculates in college?
- What happens if the child dies or becomes disabled?
- Can you change the beneficiary? Are there any restrictions on who
can become the new beneficiary?
Tax and Financial Aid Implications
- What is the impact on financial aid? Is it treated as an asset of
the parent (5.64%) or the child (20%) during need analysis, or as a
- What are the tax advantages of the plan? Do earnings grow
tax-deferred? Are withdrawals tax-free? What are the gift tax and
estate tax implications? Are contributions to the plan tax deductible?
What is the federal, state, and local tax treatment? Are state tax
benefits restricted to the state's own plan, or does the state offer
reciprocity to other state plans.
- Are there any restrictions on using the plan in conjunction with
other forms of financial aid, such as the tax benefits for education?
- Which investment firm manages the plan? Do they have a good reputation?
- Are there any other restrictions on the plan?