Glossary of Financial and College Savings Terms
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A state-sponsored, tax-advantaged investment program designed to help finance education expenses. There are two types of 529 plans: prepaid tuition plans and college savings plans. Tax advantages, investment options, restrictions and fees can vary a great deal from one plan to another.
529 Prepaid Tuition Plans
Also known as Prepaid Education Arrangements (PEAs), 529 prepaid tuition plans allow families to buy all or part of a public in-state education at present-day prices. The value of the investment is guaranteed by the state to meet or exceed annual in-state public college tuition inflation. Plan costs can vary, depending on how close the student is to college.
The account application is completed and submitted with payment to participate in a plan. It incorporates by reference the plan's Program Disclosure Statement and Participation Agreement.
A charge for expenses incurred in the administration of a 529 college savings plan, which may include services such as recordkeeping, auditing, and preparing and printing statements and reports. This fee is deducted from your holdings based on a percentage of your assets in the plan. You can find a description of the fees and expenses charged by a plan in the Program Disclosure Statement and Participation Agreement.
Age Based Portfolios
Age Based Portfolios aim to make investment decisions easier by placing you in a portfolio based on the beneficiary's age. Portfolios for younger children will invest more heavily in equities, while older children's portfolios will tend to include more fixed income and money market investments.
Automatic Investment Plan (AIP)
An Automatic Investment Plan allows you to contribute a fixed amount of money in regular intervals. Funds are automatically deducted from your checking or savings account.
Annual Rate of Return
The rate of return on your investment, expressed as a percentage of the total amount invested.
A strategy for maximizing gains while minimizing risks in your investment portfolio. Asset allocation involves dividing your assets on a percentage basis among different broad categories of investments, including equity, fixed income and money market.
The individual designated by the Account Owner to use the savings for college expenses. Anyone can be a beneficiary, including the account owner. A beneficiary can reside in the United States or abroad. You can open up more than one account for the same beneficiary, but you cannot have more than one beneficiary on the same account.
Choice Based Portfolios
Choice Based Portfolios feature the flexibility to choose from among several investment options that may align with your tolerance for risk, your time horizon and other factors.
The Internal Revenue Code of 1986, as amended.
Contingent Deferred Sales Charge (CDSC)
A common type of deferred sales charge in some 529 college savings plans and mutual funds. The CDSC normally declines each year and is eliminated after a number of years.
Coverdell Education Savings Account (CESA or ESA)
A trust or custodial account in which contributions grow on a tax-deferred basis and withdrawals are tax free if used to pay for a broad range of educational expenses, including private high school tuition. Unlike 529 plans, ESAs have annual contribution limits and income restrictions.
An account that is created for the benefit of a minor, with an adult (agent, bank, trust company, or other organization) serving as the custodian in accordance with applicable state law. The adult controls the funds until the child reaches the age of majority, at which point the account transfers into the child's name.
Spreading assets among different types of investments in an attempt to achieve a favorable rate of return, while minimizing the overall risk of losing money. Diversification has been a successful investment strategy because as some asset classes fall in value, others may perform well. Diversification does not assure profit or protect against loss in declining markets.
Eligible Institutions of Higher Education
Accredited post-secondary educational institutions offering credit towards a bachelor's degree, an associate's degree, a graduate level or professional degree, or another recognized post-secondary credential which are eligible to participate in certain federal student financial aid programs.
Mutual funds that invest mainly in stocks. Some equity funds may focus primarily on smaller, mid-sized, or larger corporations, or on specific market sectors. Also known as stock funds.
For purposes of changing the Beneficiary, the definition of a "member of the family" of the Beneficiary is: Immediate family members above first cousin, including: biological and step parents, siblings, children, nieces and nephews; parents, siblings, children, nieces and nephews by marriage; legally adopted children; and half-brothers or half-sisters.
Fixed Income Funds
Mutual funds that invest in bonds. Some fixed income funds may focus primarily on short-term, intermediate-term and long-term maturities. May also be known as bond funds.
A tax assessed against a person who gives money or assets to another person without receiving fair compensation.
Types of investment funds that raise money from shareholders to invest in a group of assets such as equities, fixed income and money market funds. Mutual funds may often have a minimum investment amount and a series of fees associated with them.
Non qualified Withdrawals
Withdrawals from a college savings account that are used for non-college related expenses. Non qualified withdrawals are subject to ordinary federal income tax, any applicable state income tax and an additional 10% federal tax on earnings.
OFI Private Investments
OFI Private Investments, Inc. a subsidiary of OppenheimerFunds, Inc., serves as Plan Manager of the Bright Start College Savings Plan.
Program Disclosure Statement and Participation Agreement
Similar to a mutual fund's prospectus, a 529 college savings plan's Program Disclosure Statement and Participation Agreement provides detailed information about the plan, including investment options and fees and expenses.
Qualified expenses include tuition, fees, and the cost of books, supplies and equipment required for enrollment and attendance at an eligible educational institution. Certain room and board expenses are also covered. Recently, computers, computer equipment, printers, software, and even internet access have been added to the list of qualified expenses. Qualified expenses also include certain additional and enrollment and attendant costs for special needs beneficiaries.
Any withdrawals from a college savings account that are used at eligible schools for the Beneficiary. These withdrawals are tax free and cover Qualified Expenses such as tuition, room and board, books, supplies and other equipment intended for college use.
A tax-free reinvestment from one qualified plan to another within a specific time frame. The time frame usually is 60 days.
Section 529 of the Internal Revenue Code specifies the requirements for qualified tuition programs (529 plans).
A separately managed account is a portfolio of stocks, bonds or a combination of stocks and bonds chosen by a professional investment manager to achieve a specific objective, such as long-term growth or current income. Each account—and its individual investments—is owned by the investor for whom it is managed. In the case of the Bright Start College Savings Program, the account is owned by the Bright Start College Savings Trust.
Successor Account Owner
A successor account owner becomes the owner of the account in the event of the death of the account owner.
An expense that can be deducted from annually reported income to reduce the amount of tax payments to the government.
Taxes that can be paid at a future date, typically when shares of certain investments are sold. Tax-deferred mutual funds can increase interest payments because more money is compounded in the fund.
Total Plan Fees
The fees include the underlying investment expenses, Program Management Fee and State Administrative Fee:
- Underlying Investment Expenses—These fees include the management and administrative fees and other expenses
- Program Management Fee—This fee is paid to the Program Manager for Plan administration and investment management services
- State Administrative Fee—This fee is paid to the Treasurer to administer and market the Plan
The Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. Control over money in an UGMA/UTMA account automatically is transferred to the beneficiary when he or she reaches the age of majority, usually 18 or 21, depending on state law.
Underlying Investment Expenses
Because 529 college savings plan portfolios typically invest in a number of underlying investments, they bear part of the fees and expenses of these underlying securities. This expense is expressed as a percentage of a portfolio’s assets. These are fees you do not directly pay, but which are taken out of the portfolio's assets. Underlying Fund expenses include:
- Management Fees—These fees include amounts paid to the investment adviser for managing the portfolio and providing other administrative services
- Other Expenses—These expenses include any other annual fund expenses
U.S. Series EE and I Savings Bonds
Backed by the full faith and credit of the United States government, U.S. government savings bonds offer a tax-advantaged way to save for college. The interest from these bonds is usually exempt from state and local taxes and is tax free if used for a beneficiary.