Frequently Asked Questions
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.
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.
I'm invested in another 529 plan. Can I transfer my account to InvestEd
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 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, 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 to begin understanding what amount the beneficiary may need 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. Only one person can establish each InvestEd account. However anyone may contribute
to the account 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 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 investment amount?
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 one 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 one 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.
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 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.
2 There 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.
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 beneficiary is also the account owner may be treated as an
asset of the beneficiary 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.
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.