Education Planning Center: 529 Plans and More

Footnotes

¹ Assets in a 529 plan potentially grow on a tax deferred basis and can generally be withdrawn federal income tax-free only if they are used to pay for qualified education expenses. Qualified expenses include tuition, fees, room and board, books and supplies at virtually any accredited post-secondary school. Effective for distributions made on or after January 1, 2018, the definition of qualified education expenses for federal income tax purposes expanded to include tuition for K-12 schools, as a result of the 2017 Tax Cuts and Jobs Act. The new tax law limits qualified 529 withdrawals for eligible K-12 tuition to $10,000 per beneficiary per year. Effective for distributions made on or after January 1, 2019, the definition of qualified higher education expenses for federal income tax purposes was expanded to include certain costs associated with qualifying apprenticeship programs and up to $10,000 (lifetime limit per individual) in amounts paid towards qualified student loans of the 529 plan designated beneficiary (or such beneficiary’s sibling). Note, however, using 529 plan distributions to repay qualified student loans may impact the deductible of student loan interest. The state tax treatment of 529 plans (including the state tax treatment of distributions) may be different from the federal tax treatment and may vary based on the particular 529 plan in which you participate and your state of residence. If the applicable state tax law does not conform with the federal tax law, 529 plan distributions used to pay certain expenses, such as K-12 tuition expenses, principal and interest on qualified student loans and/or qualifying apprenticeship costs, may not be considered qualified expenses for state tax purposes and may result in adverse state tax consequences to the account owner or designated beneficiary. Non-qualified distributions of earnings will be subject to ordinary income tax and may be subject to a 10% federal income tax penalty. Many states allow a partial or full state income tax deduction or credit for 529 plan contributions to a 529 plan, but may limit the availability of such credit or deduction to only those contributions made to that state’s sponsored 529 plan.

² Contributions to a 529 plan are excluded from a donor’s gross estate calculation, unless you name yourself as beneficiary.

³ Nonqualified distributions of earnings are subject to ordinary income tax and may be subject to a 10% penalty tax.

⁴ The North Carolina State Education Assistance Authority (the "Authority") is an instrumentality of the State of North Carolina sponsoring the Morgan Stanley National Advisory 529 Plan, and the 529 Plan is a component of the Parental Savings Trust Fund established by the General Assembly of North Carolina. Neither the Authority, the State of North Carolina nor any other affiliated public entity or any other public entity is guaranteeing the principal or earnings in any account. Contributions or accounts may lose value and nothing stated herein, the 529 Plan Description and Participation Agreement or any other account documentation shall be construed to create any obligation of the Authority, the North Carolina State Treasurer, the State of North Carolina, or any agency or instrumentality of the State of North Carolina to guarantee for the benefit of any parent, other interested party, or designated beneficiary the rate of return or other return for any contribution to the Parental Savings Trust Fund and the 529 Plan.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”) is the manager of the 529 Plan and is responsible for its administration, distribution and investment management.  Morgan Stanley does not provide tax and/or legal advice to investors in the 529 Plan.  Investors should consult their personal tax advisor for tax-related matters and their attorney for legal matters.  For more information please see the applicable Morgan Stanley ADV brochure at www.ms.com/adv.

The Morgan Stanley National Advisory 529 Plan is a proprietary offering available exclusively to Morgan Stanley advisory account clients. The Plan is not transferable to other intermediaries.

IMPORTANT DISCLOSURES

The 529 Plan Description contains more information on investment options, risk factors, fees and expenses, and potential tax consequences, which should be carefully considered before investing.  Investors can obtain a 529 Plan Description from their Financial Advisor and should read it carefully before investing.

Investments in the 529 Plan are not FDIC-insured, nor are they deposits or guaranteed by a bank or any other entity, so an individual may lose money through such investments.

Investors should consider many factors before deciding which 529 plan is appropriate.  Some of these factors include:  the plan’s investment options and the historical investment performance of these options, the plan’s flexibility and features, the reputation and expertise of the plan’s investment manager, plan contribution limits and the federal and state tax benefits associated with an investment in the plan.  Some states, for example, offer favorable tax treatment and other benefits to their residents only if they invest in the state’s own qualified tuition program.  Investors should determine their home state’s tax treatment of 529 plans when considering whether to choose an in-state or out-of-state plan.  Investors should consult with their tax or legal advisor before investing in any 529 plan or contact their state tax division for more information. 

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