Frequently Asked Questions - New York's 529 College Savings Program
How is New York's 529 College Savings Program structured as a college savings vehicle?
The New York 529 program is a college savings program established under Section 529(b)(1)(A)(ii) of the Internal Revenue Code. Under the New York 529 program, an individual makes contributions to an account which is established for the purpose of meeting the qualified higher education expenses of a designated beneficiary. The designated beneficiary can be any person. For purposes of this bulletin, we will assume that the designated beneficiary is the student. The individual making contributions is the account owner. An account owner may be a parent, the student or anyone else, and the account owner retains the right to change the designated beneficiary or withdraw the funds for purposes other than the beneficiary's college education. In order for a withdrawal to be a qualified withdrawal for the New York 529 Program, it must be made for qualified higher education expenses.
What is the difference between New York's 529 College Savings Program and prepaid tuition programs?
Unlike college savings programs where an individual makes contributions to an account for the designated beneficiary, prepaid tuition programs are structured so that purchases of units of attendance occur on behalf of a designated beneficiary. Neither assets in prepaid tuition programs nor their distributions are reported on the FAFSA.
If the owner of a college savings account is the parent, is the account reported on the FAFSA as an asset of the parent or the student?
A college savings account owned by the parent should be treated in the federal need analysis as an asset of the parent. Based on the fact that the student can be removed as the beneficiary of an account at any time and the account owner can close the account and use the proceeds for another purpose, the assets held in college savings plan accounts owned by a parent are assets of the parent. Thus, in the case of a dependent student where the parent owns the account in the New York 529 Program, the assets in the account are reported in the category of "Investments
" on the FAFSA.
How is the college savings account reported on the FAFSA if the student is both Account Owner and Designated Beneficiary?
Student-owned accounts are reported in the category of "Investments" by the student on the FAFSA.
How is the account reported on the FAFSA if the Account Owner is someone other than the student or parent?
When the account owner is neither the parent nor the student, college savings accounts are not required to be reported on the FAFSA as assets, regardless of who owns the account. However, the earnings portion of a withdrawal which is not
a qualified withdrawal is federally taxable income to the account owner. In all cases, the principal portion of a withdrawal is not federally taxable income.
The earnings portion of the qualified withdrawal will be included in the student's federal adjusted gross income, which will be reported on the FAFSA for the academic year following the year in which the qualified withdrawal was made. When the account is owned by someone other than the student or a parent, in the year following a qualified withdrawal, the principal portion of the qualified withdrawal is reported on the FAFSA as "Cash received, or any money paid on your behalf, not reported elsewhere on this form," since this category includes expenditures on the student's behalf by anyone other than the student or the parent.
However, in the case of a withdrawal other than a qualified withdrawal from an account owned by someone other than the parent or student, the entire withdrawal would be reported on the FAFSA as "Cash received, or any money paid on your behalf, not reported elsewhere on this form," to the extent used to make an expenditure on the student's behalf.
How are New York's 529 College Savings Program assets treated for New York State financial aid purposes?
Assets held in New York's 529 College Savings Program are not used in the calculation of TAP eligibility or eligibility for any other New York state-administered financial aid program. Owning an account or having an account established on behalf of a student will not adversely affect the student's eligibility calculation for New York State - administered financial aid.
The disbursement of New York's 529 College Savings program funds are incorporated into HESC's existing Escrow Electronic Funds Transfer Service (EFT) and check disbursement systems.
What is a qualified withdrawal?
Qualified withdrawals are those used to pay for the "qualified higher education expenses" of the student-beneficiary. To be considered a qualified withdrawal, the institution at which the student is enrolled must qualify as an "eligible educational institution," and the expenses the funds are being used for meet the Internal Revenue Service (IRS) criteria as "qualified higher education expenses." Colleges should note, the determination of qualified higher education expenses, and the documentation that funds are used for their intended purpose are solely the responsibility of the account owner and/or student-beneficiary.
What are qualified higher education expenses?
To qualify for federally tax-free withdrawals on earnings, the money must be used for qualified higher-education expenses of the beneficiary at an eligible educational institution. These expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room-and-board expenses during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a "special needs" student. For 2009 and 2010 only, assets in your account can be used to pay for expenses paid or incurred for the purchase of any computer technology or equipment or internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution. Expenses for computer software designed for sports, games, or hobbies, are not included unless the software is predominantly educational in nature. Reference IRS Publication 970 for more detailed information on eligible expenses at www.irs.gov/publications/p970/index.html.
How will funds from New York's 529 College Savings Program be disbursed?
Colleges which have an EFT agreement with HESC, will receive funds by EFT. Colleges which do not have an EFT agreement with HESC, will receive funds by check. Funds for off-campus expenses, and for students enrolled at foreign colleges will be disbursed directly to account owners.
How will colleges know what semester the funds are for?
For EFT transactions, the EFT file will include the starting and ending dates of the academic period for which the funds are requested. These dates will be expressed in 8 digits (CCYYMMDD). For colleges receiving funds by check, the academic period is identified on the check stub as calendar dates i.e. 09/01/2009-06/30/2010.
What EFT file format(s) will be used for disbursements?
EFT disbursements of New York's 529 College Savings Program funds will be made using CommonLine disbursement files or HESC's proprietary EFT files.
Can colleges return funds to HESC?
Colleges should apply their standard policies and procedures for crediting student accounts and refunding excess funds to students. In the event that you are unable to locate the student, or at the student's direction, you may return funds to HESC. Colleges using EFT should return funds on the standard EAR file. If possible, please complete the "reason for return" field on the EAR file. If you return funds by check, send all returns to: "Cashier, New York State Higher Education Services Corporation, 99 Washington Avenue, Albany, New York, 12255." For full returns, please send the original check. For partial returns, be sure to include the original check number, student Social Security number, and account owner Social Security number, this data is included on the original check stub.
Can funds be used to cover a partial liability incurred by a student who has withdrawn?
Funds can be used to cover partial liability as long as the liability was incurred during the academic period specified on the EFT/check.
Are there any unique reporting requirements for these funds?
There are no unique reporting requirements associated with the receipt of these funds.
Who can answer student or parent questions?
Direct all student/parent questions to 1-877-697-2837. New York's 529 program customer service representatives will be able to answer general questions about New York's 529 College Savings Program as well as any specific questions about withdrawal policies and procedures.
Will HESC verify the existence of college savings program funds so that colleges may defer payment due dates?
Federal law prohibits the Program from releasing account information to any third party. The Program can not verify in advance the existence of an account, account balance, or provide any other information about an account. While establishing your institution's policy on deferring payments against anticipated receipt of funds from New York's 529 College Savings Program, or any other IRS 529 qualified tuition savings program, it may be important to recognize that many accounts are held in variable return investment vehicles. As a result, account values change daily in response to financial market conditions.