The New Oregon College Savings Plan

Many people have asked us about the IRS Section 529 College Savings Plans, specifically the Oregon College Savings Plan. These plans are a great way to save for a child's higher education while removing funds from your potentially taxable estate. In general, not only does your investment income grow tax free throughout the college savings period, but withdrawals are also tax free if the funds are used for qualified educational expenses.

With the help of the Oregon College Savings Plan web site, www.oregon529network.com, we want to share some useful information for you concerning this plan.

Tax Benefits:

• Oregon state tax deduction of $2,000 on contributions each year.
• All earnings grow Oregon State and federal tax-free.
• All withdrawals are Oregon State and federal tax-free if used for qualified college expenses.
• Control remains with the person who establishes the account.
• Funds can be used nationwide at any eligible school of higher education.
• Funds can be used for tuition, room and board, books and other required fees.
• Invest as much as $250,000 per beneficiary.
• Open an account for as little as $25 per month.
• Change beneficiaries tax-free and penalty-free.
• Assets are held in trust by the State of Oregon.
• Assets are protected from bankruptcy.

Frequently asked Questions about the Oregon College Savings Plan

If I participate in a 529 college savings plan that is not managed by the state of Oregon, can I still take the $2,000 deduction from my Oregon taxable income?

No. The $2,000 Oregon State tax deduction applies only to plans managed by the state of Oregon. Those plans are the

• Oregon College Savings Plan,
• the MFS 529 Savings Plan,
• and the USA CollegeConnect Plan.

Who is eligible to take the $2,000 Oregon state tax deduction?

Anyone who pays Oregon State taxes and contributes to a 529 plan managed by the state of Oregon can take a tax deduction of up to $2,000 in contributions per year.

If I contribute $2,000 to an Oregon 529 plan and my spouse contributes $2,000 to an Oregon plan, are we both eligible for the $2,000 state tax deduction?

No. $2,000 is the maximum deduction per tax return, per year. A $1,000 tax deduction can be taken per person if married and filing separately.

Is there an income ceiling for taking the $2,000 Oregon State tax deduction when contributing to an Oregon 529 college savings plan?

No. There are no income limits.

Can I open an Oregon 529 college savings plan for a beneficiary who does not live in Oregon? Will my contributions to that plan be eligible for the $2,000 Oregon State tax deduction?

Yes. The beneficiary of an Oregon 529 college savings plan can live in any state and can use the 529 savings to attend an eligible educational institution anywhere in the United States or abroad. If you pay Oregon income taxes, contributions to an Oregon 529 plan for an out-of-state beneficiary are eligible for the $2,000 state tax deduction.

Must I be the account owner to claim the $2,000 Oregon State tax deduction for contributions to an Oregon 529 college savings plan?

No. Anyone who contributes to an Oregon 529 college savings account and pays Oregon income taxes is eligible to take a state tax deduction of up to $2,000 for those contributions.

Are earnings and withdrawals state or federally tax-free?

Yes. If used for Qualified Higher Education Expenses, investment earnings and withdrawals are currently both state and federally tax-free.

This provision is subject to potential sunset revisions on December 31,2010. At that time Congress may change the tax-free withdrawal status for qualified education expenses.

What are Qualified Higher Education Expenses?

Qualified Higher Education Expenses include tuition, fees, books, supplies and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution. Qualified expenses also include expenses for special needs services in the case of a special needs beneficiary who incurs such expenses in connection with enrollment or attendance at an eligible educational institution. Also included as a qualified higher education expense is an amount for the room and board a student incurs while attending an institution at least half-time.

If I open an account for more than one beneficiary, can I take the $2,000 state tax deduction for each beneficiary?

No. The maximum state tax deduction allowed per year is $2,000. This can include contributions to more than one Oregon 529 plan account, but the total deduction cannot exceed $2,000 per year.

How much can I contribute to an Oregon 529 college savings plan?

There is no contribution limit for Oregon 529 plans. However, once the total balance of all accounts for a single beneficiary reaches $250,000, no more contributions can be made to that beneficiary until the total amount drops below $250,000.

What is the minimum contribution to an Oregon 529 college savings plan?

This varies between the three plans sponsored by the State of Oregon. However, the lowest minimum investment to open an account is $250. That minimum is waived if you use the automatic investment option of just $25 per month.

Is my beneficiary required to attend an Oregon college or university?

No. Beneficiaries of Oregon 529 college savings plans can attend any eligible educational institution in the U.S. and abroad, including vocational schools, technical schools, two- and four-year colleges and graduate schools.

How many accounts can I own?

You can own as many Oregon 529 plan accounts as you like.

How many accounts can a beneficiary have in his or her name?

There is no limit to the number of accounts a beneficiary can have in his or her name; however, the total balance of all accounts for a single beneficiary cannot exceed $250,000.

How does a 529 plan affect my child's ability to qualify for financial aid?

Assets in an Oregon 529 plan are considered the account owner's for purposes of determining financial aid.

Why does Oregon have three 529 college savings plans?

Oregon offers three 529 college savings plans to provide a variety of options to better meet the needs of those desiring to save for college. Each has it's own features and benefits different from the others providing customer choice and competition benefits to the citizens of Oregon..

What if my beneficiary decides not to go to college?

If your beneficiary decides not to attend college, you have three options:

1. You can continue to let the assets grow tax free, since there are no age restrictions on the investments in the Oregon 529 plans.
2. You can change the beneficiary at any time, as long as the new beneficiary is a family member of the current beneficiary.
3. You can take a non-qualified withdrawal, and the earnings will be taxed at the account owners' ordinary income-tax rate in addition to a 10% federal tax.

What if my beneficiary receives a scholarship?

You can withdraw an amount equal to the value of the scholarship from your account without being subject to the 10% additional federal tax. However, the earnings will be taxed at the account owner's ordinary income-tax rate. You can also leave the money in the account and/or change the beneficiary.

Who can I name as beneficiary on the plan?

Anyone can be the beneficiary of an Oregon 529 plan regardless of age.

Qualified Higher Education Expenses

These expenses include tuition, fees, and the costs of books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at any eligible college, university, vocational school, or other post-secondary institution. Certain room and board expenses are also included as long as the beneficiary is enrolled at least halftime. If the beneficiary lives in housing operated by the educational institution, the cost cannot exceed what is normally assessed for most of its residents. For beneficiaries who live at home, room and board expenses cannot exceed $1,500 per academic year. If the beneficiary lives off campus, the limit is $2,500 per academic year.

Member of the Family

For purposes of changing the designated beneficiary, a "Member of the Family" includes:Father or mother, or an ancestor of either, Son or daughter, or descendant of either, Stepfather or Stepmother, Stepson or Stepdaughter, Brother, sister, stepbrother, or stepsister, Brother or sister of the father or mother, Brother-in-law, sister-in-law, son-in-law, daughter-in-law, father-in-law, or mother-in-law, Son or daughter of a brother or sister, Spouse of the designated beneficiary or any of the above individuals

Non-Qualified Withdrawal

According to I.R.C. 529, any withdrawal that is not used for qualified higher educational expenses of the designated beneficiary will be considered a non-qualified withdrawal and the earnings portion will be taxed as ordinary income of the account owner and may be subject to a 10% penalty. However, no penalty will be assessed if the beneficiary is deceased, disabled, or receives a qualified scholarship.

Qualified higher educational expenses include tuition, fees, and the cost of books, supplies, required equipment, and potentially room and board for any eligible college, university, vocational school, or other post-secondary school.

Flexible Contribution Options

• Start building your account with an automatic investment plan or payroll direct deposit of just $25 a month.
• Low initial contribution of only $250 is required to open an account
• Contribute up to $250,000 for a single beneficiary
• Convenient methods of contributing - check, money order, electronic funds transfer, Federal Wire, automatic investment, and payroll deduction

What happens if my beneficiary or I move out of the state of Oregon?

Nothing. You still own the College Savings Plan account and you may continue to contribute to it, however, you may no longer be qualified for the state tax deduction on your contributions.

What can the money be used for?

The money in the account can be used to pay for qualified higher education expenses at any eligible college, university, vocational school, or other post-secondary institution in the State of Oregon or anywhere in the country (as well as some outside of the United States). The savings in your account can also be used for graduate school, law school, medical school, or just about any higher educational program. Qualified expenses include tuition, fees, supplies, books, and required equipment. In addition certain room and board costs are included.

What room and board expenses are covered?

The beneficiary must be enrolled at least halftime for room and board expenses to qualify and there are limits on the total room and board allowed per academic year. The limit for room and board will be based on a stated "cost of attendance" provided by each institution. This allows for more realistic distributions in areas where the cost of living is higher.

Can I withdraw money from the account for non-educational purposes?

Yes. The account owner may withdraw money for non-educational purposes, but the earnings portion of the money will be subject to a 10% penalty and will be federally and state taxed at the owner's tax rate.

What if my child decides not to go to college or drops out at some point?

If the beneficiary does not use the money, the account can be transferred to another beneficiary who is a member of the family. You can also close the account and receive the balance at any time, but there will be a 10% penalty for withdrawing funds this way. In addition, federal and state income taxes must be paid at the account owner's tax rate on the earnings portion of the withdraw. The penalty is waived if the distribution is due to death or the disability of the beneficiary, or if a scholarship or nontaxable grant is awarded to the beneficiary. If the beneficiary drops out of school out at some point, the funds can remain in the account until the beneficiary returns to school.

How do I get started?

You can request a free enrollment kit for an Oregon 529 College savings plan from the Oregon College Savings Plan website at www.oregon529network.com.