This article includes frequently asked participant questions about Gradifi’s College SaveUp benefit.
- What Is a College SaveUp Plan?
- What Is a 529 Plan and What Education Expenses Can They Be Used For?
- How Do You Determine Which Beneficiaries Are Eligible to Receive Contributions?
- What 529 Plans Are Eligible to Receive Contributions From a College SaveUp Plan?
- What Is a Direct-Sold 529 Plan Versus an Advisor-Sold 529 Plan?
- How Can I Open a Direct-Sold 529 Plan?
- How Do I Know the Status of My 529 Account Enrollment Within My Gradifi Account?
- What if My 529 College Savings Plan Is Held in My Spouse’s Name or Is Not Listed as a 529 Plan Approved by Gradifi to Receive Contributions?
- I Have More Than One Beneficiary, Can I Split the Contribution Between Them?
- Do I Have to Pay Taxes on This Benefit?
- Can I Claim Tax Benefits on Contributions Being Made by the Employer? Should I Include Employer Contributions for Gift Tax Purposes?
1. What Is a College SaveUp Plan?
A College SaveUp plan is an employee benefit that enables employers to help their employees save for college by making direct contributions to a 529 college savings plan held by the employee.
2. What Is a 529 Plan and What Education Expenses Can They Be Used For?
A 529 plan is a tax advantaged savings plan designed to help individuals save for college. 529 plans are sponsored by states and are named after Section 529 of the Internal Revenue Code. Each 529 account must have a designated beneficiary, who will incur the educational expenses and must meet relationship criteria to the account owner.
529 funds can be withdrawn federally tax-free as long as they are used for the designated beneficiary's qualified education expenses, including, but not limited to, tuition, fees, books, and room and board.
3. How Do You Determine Which Beneficiaries Are Eligible to Receive Contributions?
Your employer determines if there are any restrictions on the beneficiary of designated 529 plan accounts. For example, some companies limit contributions to plans where the beneficiary of the 529 plan is a direct dependent of the employee and below a certain age. Some employers may not allow the employee to be the beneficiary of the 529 account. For further information regarding any beneficiary restrictions, we recommend you reach out to your employer.
4. What 529 Plans Are Eligible to Receive Contributions From a College SaveUp Plan?
Currently, all direct-sold 529 plans are eligible plans. To receive contributions, you must have a 529 college savings plan approved by Gradifi. If you do not currently have an approved 529 plan, you may open a new direct-sold 529 plan account and then register it with Gradifi.
5. What Is a Direct-Sold 529 Plan Versus an Advisor-Sold 529 Plan?
There are generally two types of 529 college savings plans, in terms of how they are sold to the public.
- Direct-Sold College Savings Plans: These can be purchased by you directly from the state that sponsors the plan or the plan’s program manager.
- Advisor-Sold College Savings Plans: Also known as broker-sold, these plans are sold through third parties such as investment/financial advisors, brokerage firms, and banks that usually receive a fee or commission associated with your investment.
While there are advantages and disadvantages to each type of plan, direct-sold plans usually have lower fees and expenses than advisor-sold plans. However, some advisor-sold plans provide access to investments that are not available through direct-sold college savings plans.
In addition, advisor-sold plans tend to be more actively managed by the advisor. As with any investment, be sure to review and evaluate the various features of each plan along with the fees and costs associated with those plans before investing. Currently, advisor-sold plans are not eligible to receive contributions from your employer.
6. How Can I Open a Direct-Sold 529 Plan?
First, you should choose a state’s plan. Funds from any state’s plan may be used to pay qualified educational expenses from any U.S. educational institution that meets IRS guidelines. You do not have to open a plan from your home state, though you should make sure to fully understand the program’s rules and state-specific tax, scholarship, or other advantages of investing in your state’s plan before making a decision. You may open the 529 plan directly from your chosen plan’s website. For a complete list of direct-sold plans, please log in to your Gradifi account and visit https://www.gradifi.com/member/529-plan-information.
7. How Do I Know the Status of My 529 Account Enrollment Within My Gradifi Account?
Every 529 account you add enters your Gradifi account in a “Pending Verification” status. Gradifi requires supporting documentation in the form of a 529 plan account statement that includes the account number, your name as the account holder, the beneficiary name, and the 529 plan name.
Gradifi requires a one- to three-business-day review period from submission to verify that the information on the supporting document matches the information you entered and that it is for a valid participating 529 plan account allowed by Gradifi. When your 529 account changes status within the Gradifi system, whether it is verified or invalid, you will receive an email notification to the email address you registered as the username of your account. Additionally, you can see the status of your 529 account on the “529 Accounts” page in your Gradifi account.
If your account has been verified, it will be listed under the “Active Accounts” section of the page. If your account is still under review or has been invalidated for any reason, you will see it listed under “Inactive Accounts” with its status listed.
If you have any questions regarding the status of your account, please contact Gradifi customer support at membersupport@gradifi.com or by calling us at 1-844-GRADIFI(472-3434).
8. What if My 529 College Savings Plan Is Held in My Spouse’s Name or Is Not Listed as a 529 Plan Approved by Gradifi to Receive Contributions?
Employers want to ensure that contributions they make benefit their employees and therefore require that all 529 savings plans registered in a College SaveUp plan are held in the name of their employee. If you do not hold a 529 savings plan in your name and/or it is not a 529 plan supported by Gradifi, and you would still like to participate in the program, you can open a new account that meets these criteria. You may also check with your spouse’s financial institution to see if you can transfer his or her existing account into your name.
9. I Have More Than One Beneficiary, Can I Split the Contribution Between Them?
Yes, you will be able to add multiple 529 college savings plans to your Gradifi account. This will allow you to enter 529 accounts that may have different beneficiaries or enter multiple accounts with the same beneficiary. Your company’s College SaveUp plan contributions will be distributed amongst them as long as contributions to each 529 plan do not go below account minimums.
10. Do I Have to Pay Taxes on This Benefit?
Yes. Please keep in mind that because this benefit is paid by your employer on your behalf, it is considered imputed income. Your employer is required to add this to your taxable wages for tax purposes. For further information, we recommend that you contact your employer or a tax advisor.
11. Can I Claim Tax Benefits on Contributions Being Made by the Employer? Should I Include Employer Contributions for Gift Tax Purposes?
If you live in a state that provides tax incentives for 529 plan contributions and you meet the requirements of your state, you may be able to claim those tax incentives even when the contributions are funded by your employer. In addition, contributions from your employer may also count against the annual federal tax-free gift allowance for gifts you make to the 529 plan account beneficiary. To determine if either of these applies to your specific situation, please check with your tax advisor to determine any tax implications.
If you have any additional questions, please contact us at membersupport@gradifi.com.