General

Governed by Section 529 of the Internal Revenue Code, 529 plans are tax-advantaged higher education plans sponsored by individual states to encourage individuals and families to save for future higher education expenses.

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HI529 is a 529 plan offered by the State of Hawai’i through the Department of Budget & Finance. The HI529 College Savings Program is designed to help individuals and families save for college in a tax-advantaged way and offers valuable benefits including tax-deferred growth, generous contribution limits, attractive investment options, and professional investment management.

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When you enroll in the HI529 College Savings Program, you choose to invest in one or more of the available investment options, including the Age-Based Portfolio and eight Individual Portfolios, based upon your investing preferences and risk tolerance. All of the contributions made to your account grow tax-deferred and the distributions are free from federal and HI taxes if used for qualified higher education expenses.1

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Any U.S. citizen or resident alien, 18 or older, with a Social Security number or taxpayer identification number and a permanent U.S. street address can open an HI529 account, regardless of income level or state of residence. Parents, grandparents, other family, and friends can open an account for anyone they choose.

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Any person of any age (with a Social Security number or taxpayer identification number) can be named as the beneficiary of a HI529 account. As account owner, you can select a child, adult or even yourself as beneficiary. If a beneficiary decides not to attend college, you can name another beneficiary who is a Member of the Family2 of the original beneficiary.

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Anyone can contribute to a HI529 account so long as the total market value of all accounts in 529 plans sponsored by the State of Hawai'i for the same beneficiary does not exceed $305,000. Account owners can also invite family and friends to contribute directly to their account with Ugift®, an easy, free-to-use service to help with college savings.

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Yes. As the account owner, you maintain control of the assets at all times and determine when and how the assets are used.

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The money in your HI529 College Savings Program account can be used for any purpose. However, to qualify for federal tax-free distributions and avoid penalties1, the account assets must be used at eligible educational institutions, including accredited public or private colleges, universities, or trade schools in the country and some higher education institutions abroad.3

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Qualified higher education expenses include tuition, certain room and board costs, computers and applicable software, books, supplies and other expenses related to enrollment or attendance at eligible educational institutions.

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Yes. Repayment of student loans is considered a qualified higher education expense (up to a lifetime limit of $10,000 per individual).

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No. The money in your account may be used at any eligible educational institution in the United States and abroad that qualifies under federal guidelines. This includes most public and private colleges and universities, graduate and post-graduate schools, community colleges, and certain trade and vocational schools.3 You can generally determine if a school is an eligible educational institution by referring to the Department of Education’s website at www.fafsa.ed.gov.

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If the beneficiary decides not to go to college, you have three options:

  • Stay invested. You can leave the money in the account in case the beneficiary decides to attend school later. There is no age limit for using the money and unused funds can continue to grow. You can even save it for your children’s future children.
  • Change the beneficiary. You can change the beneficiary on your account at any time provided that the new beneficiary is an eligible Member of the Family of the former beneficiary. (Please see the Program Disclosure Booklet for more information on who qualifies.)
  • Withdraw the money for other uses. The earnings portion of a distribution not used for a beneficiary's qualified higher education expenses is subject to federal and District income taxes and may be subject to a 10% federal penalty tax. (For exceptions to this penalty, please see the Program Disclosure Booklet.)

Additionally, any accumulated earnings that are withdrawn from your account must also be reported on the recipient's income tax return for the year in which they are withdrawn. Contact your tax advisor to determine how to report a non-qualified distribution.

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Investments

The plan offers the following investment options:

  • An Age-Based Option.4 For those who prefer a simplified approach to investing, HI529 offers an Age-Based Option. When you select this option, your assets will automatically adjust according to the age of your account's beneficiary through a series of investment portfolios that change over time.
  • Individual Portfolios.For those who prefer to build a custom portfolio tailored to specific investment goals, HI529 provides Individual Portfolios that provide varying levels of risk exposure to meet your risk tolerance and time horizon. You can select up to five investment options per account.

For investment performance information, visit the Portfolio Price and Performance page.

For complete details on the investment options offered by HI529, please see the Plan Disclosure Statement.

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No. The investments in the Age-Based Option will automatically change over time as your beneficiary ages, shifting automatically from more aggressive investments when the beneficiary is younger to more conservative investments as the beneficiary approaches college age.4

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You can change the direction of your future contributions at any time. For existing account assets in your HI529 account, Federal law permits you to move them to a different mix of investment options twice per calendar year - or whenever you change the account's beneficiary.

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Taxes

  • Federal income tax-free. Earnings grow tax-deferred and are free of federal income tax when used for qualified higher education expenses. Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room and board costs during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a "special-needs" student. (The earnings portion of non-qualified withdrawals is subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.)
  • State income tax-free. For Hawai'i taxpayers, earnings are exempt from Hawai'i state income tax when used for qualified higher education expenses. If you're not a Hawai'i taxpayer, consider whether your home state offers a 529 plan that provides its taxpayers with tax benefits not available to you through this plan. Be sure to weigh all the pros and cons of a particular plan before you choose to invest.


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  • Federal gift tax. Individuals can invest up to $15,000 ($30,000 for married couples) annually per beneficiary without assuming any federal gift tax consequences. You can also contribute up to $75,000 in a single year ($150,000 for a married couple filing jointly) per beneficiary without incurring federal gift tax, if you elect to apply the contribution against the annual gift tax exclusion equally over a five year period.
  • Federal estate tax. If you die with money remaining in your account, it will not be included in your estate for federal estate tax purposes. However, if you choose to take advantage of the federal gift tax averaging option mentioned above and you die within five years of contributing, a prorated portion of the contribution will be subject to estate tax. For more information, consult your tax advisor or estate-planning attorney.


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No. At this time, the State of Hawai’i does not offer an income tax deduction for contributions to HI529.

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Financial Aid

529 plan assets are counted at different rates when calculating a student’s Expected Family Contribution (EFC) in the FAFSA formula. As of July 1, 2009, federal guidelines are as follows:

  • If the student is a dependent, a 529 plan account is considered as the parent's asset (if the account owner is the parent or the dependent student). As a result, it will generally be counted at a rate of only 3-6% of its value for the EFC.
  • If the student is not a dependent and is the account owner, the 529 plan account is treated as the student's asset and is generally factored into the EFC at the higher rate of 20%.
  • In other cases, the account does not count as an asset for federal financial aid purposes. (However, a student may have to report distributions received from the account as income for these purposes.)

Note: Financial aid programs offered by educational institutions and other non-federal sources may have their own guidelines for the treatment of 529 plan accounts. For complete information about financial aid eligibility, you should consult with a financial aid professional and/or the state or educational institution offering a particular financial aid program, since rules and regulations often change.

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1Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

2Section 529 defines a Member of the Family member as: a son, daughter, stepson or stepdaughter, or a descendant of any such person; a brother, sister, stepbrother, or stepsister; the father or mother, or an ancestor of either; a stepfather or stepmother; a son or daughter of a brother or sister; a brother or sister of the father or mother; a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; the spouse of the beneficiary or the spouse of any individual described above; or a first cousin of the beneficiary. Gift or generation-skipping transfer taxes may apply. Please consult with your tax advisor for further information.

3Eligible educational institutions include all post-secondary institutions that participate in federal student financial aid programs.

4Portfolios with higher allocations to bonds and short-term investments tend to be less volatile than those with higher stock allocations. Less volatile portfolios generally may not decline in value as much when markets decline, but also may not appreciate in value as much when markets go up. Investments in bonds are subject to interest rate, credit, income, and inflation risk.

5You could lose money by investing in the Income and Money Market Portfolio’s investments in the Vanguard Federal Money Market Fund. Although the money market fund in which your investment option invests (the “underlying fund”) seeks to preserve its value at $1.00 per share, the underlying fund cannot guarantee it will do so. An investment in this investment option is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The underlying fund’s sponsor has no legal obligation to provide financial support to the underlying fund, and you should not expect that the sponsor will provide financial support to the underlying fund at any time.

 

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