A brief history: 529 plans were created by Congress in 1996 and have been modified through the years by various pieces of legislation. Known officially as “qualified tuition programs” or QTPs, 529 plans are so named because they are governed by section 529 of the Internal Revenue Code.
Arizona’s Education Savings Plan is Arizona’s version of the savings plans permitted under IRS code section 529. These plans are designed to encourage individuals to save for future education expenses. The Office of the Arizona State Treasurer is the state agency that administers the program. Additional information can be found in the AZ529 Investment Policy Statement.
Any person who desires to save for qualified higher education expenses, even for oneself. Once an account is established, anyone can contribute to that account.
Any person interested in pursuing post high school training and educational opportunities may be designated as a beneficiary of an account. Parents can save for their children. Grandparents can save for their grandchildren. Aunts and uncles can save for their nieces and nephews. Friends can save for their friends. You can even save for yourself.
There is no application fee.
Effective September 29, 2021, for Tax Year 2021 and after, the state of Arizona offers a tax deduction each year for investing in the Arizona 529 Plan or any state’s 529 plan of up to $4,000 per beneficiary for married tax filers who file a joint return and up to $2,000 per beneficiary for individual tax filers. There is no limit on the number of beneficiaries Arizona residents can make contributions to in a tax year.
The 529 program was originally designed to pay for qualified postsecondary education expenses. These include tuition and fees, books, supplies and equipment including computer technology, related equipment and software, as well as internet access or related services used by the student while enrolled at an accredited postsecondary institution. Students who are enrolled at least half-time may also use funds saved in a 529 account for room and board expenses. In December 2019, the SECURE Act was signed into law, which expanded the approved use of 529 funds to include:
a) expenses for fees, books, supplies, and equipment required for participation in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (https://www.apprenticeship.gov/apprenticeship-finder), and
b) qualified student loan repayments, up to a lifetime maximum of $10,000 per beneficiary.
The Federal Tax Cuts & Jobs Act signed into law in late December 2017 added an additional category of expenses for which 529 funds may be used. Qualified withdrawals from 529 accounts are free of federal and state taxes. Account owners of 529 plans can now treat withdrawals used for public, private, and religious K-12 tuition expenses as qualified withdrawals, up to $10,000 per calendar year for each beneficiary.
In developing the program, flexibility was an important consideration. Funds from the Arizona program can be used at accredited institutions anywhere in the country. This includes two-year and four-year public or private colleges, universities, community colleges, or technical training schools. To be eligible the student must attend a college, university or vocational program accredited by an agency that is recognized by the U.S. Department of Education.
Yes. Each account can have only one designated beneficiary. However, a contributor may open an account for one child and, at a later date, change the designated beneficiary to another member of the original designated beneficiary’s family.
The State of Arizona has established a maximum account balance limit of $575,000 effective October 1, 2023 through September 30, 2024 for contributions to the account(s) of each designated beneficiary.
If the beneficiary does not attend college or does not finish college the account owner maintains control of the account. The account owner can change the name of the beneficiary on the account to another member of the original beneficiary’s family. Funds may be left in the account for the current beneficiary in the event he or she returns to school. If the money is withdrawn and not used for qualified higher education expenses, investment earnings will become subject to federal and state income tax, and a federal 10 percent penalty will be imposed.
For state financial aid, the balance in an account will not be treated as income of the parents, nor of the student when determining financial need. Federal financial aid programs may take up to 5.64% of the account balance into consideration as a parental asset when determining eligibility for need-based aid.
In the cases named above, the account owner may withdraw the assets in the account without incurring the 10% federal tax penalty applicable for non-qualified withdrawals. However, only the assets up to the amount of the scholarship can be withdrawn without penalty. In all cases when not used for qualified expenses, the earnings will be subject to federal income tax.
If you move to another state, you can continue to invest in the account.
Investments in an AZ529 account are neither insured nor guaranteed by the State of Arizona or The Office of the Arizona State Treasurer. One of the AZ529 financial institutions, Fidelity offers FDIC insured investment options. Please contact the individual financial institutions for additional information.
An account may be “rolled over” or transferred to another account within a financial institution in Arizona’s Education Savings Plan or to another provider in the AESP (without penalty) once per calendar year. However, this must be a transfer or “rollover” not a withdrawal, or it will be deemed an unqualified withdrawal and be subject to penalties and taxes. You can also “rollover” your account to another state’s plan if so desired.
An individual may contribute up to $17,000 annually or $34,000 for married couples filing jointly without paying gift taxes or filing a gift tax return. This assumes no other gifts are made to the beneficiary in the same year.
You also may accelerate up to five years’ worth of the annual exclusion amount and reduce the value of your estate by contributing up to $85,000 or $170,000 for married couples filing jointly per beneficiary. This amount is subject to “add-back” in the event of the participant’s death within five years and also assumes no other gifts are made to the same beneficiary during the same period.
In 2014, the Achieving a Better Life Experience (ABLE) Act gave 529 account owners the authority to change investment options twice per calendar year or when the designated beneficiary is changed.
Yes and no. In determining if additional contributions can be made to the account, the earnings are counted. If your previous contributions and earnings equal or exceed the contribution limit, no additional contributions can be made. However, once you have made qualified contributions, you will not be penalized for good investment performance. The account can grow to any size.
The next step is to determine which savings program is best suited for your investment goals. Review the investment options offered by the two authorized financial institutions within Arizona’s Education Savings Plan. Each financial institution has customer representatives available to answer your questions and explain the details of their investment options. More information can be found on the Getting Started page.
Yes, you can. This type of transfer is called a rollover. Under federal tax laws, you are allowed one rollover of a 529 plan account during any 12-month period for each beneficiary. To roll over an account, you will need to open an AZ529 account, then complete a Rollover Form for the financial institution you plan to begin saving with.
They can be reached at:
- Fidelity Investments – 1.800.544.1262
- Goldman Sachs Client Services – 888.462.6209
- Ascensus Dealer Services – 877.486.9279