Below are descriptions of certain key terms. Please refer to the Plan Description and Master Agreement for more complete definitions of these terms.

$13,000

Contributions are “completed gifts” for gift tax purposes and qualify for the $13,000 annual exclusion per Beneficiary that took effect Jan. 1, 2009.

$65,000

If the Account Owner dies before the first day of the fifth calendar year, the portion of the prorated contributions allocable to calendar years following the year of death (except for earnings on such investment) would be includible in the estate of the Account Owner for federal estate tax purposes. More information can be found in the Plan Description. Purchasers should consult with a qualified tax advisor.

529 Plan

A 529 plan is an education savings plan operated by a state or an educational institution and designed to help families set aside funds for college. It is named after Section 529 of the Internal Revenue Code which authorized these types of tax-advantaged savings plans in 1996. Earnings on 529 plans are tax-free if used for qualified higher education expenses. (Unqualified withdrawals may be taxable as ordinary income and subject to a 10% federal tax penalty.) The Pension Protection Act of 2006 made the tax-free character of 529s a permanent part of federal law.

529 Prepaid Tuition Plans

Also known as Qualified Tuition Programs (QTPs) or 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.

72%

The Texas Higher Education Coordinating Board reports that from Fall 2003 to Fall 2009 the statewide average total academic charges for a student taking 15 credit hours at a Texas public university increased 72 percent.

Beneficiary

The person designated by the Purchaser under a Prepaid Tuition Contract as the person for whom undergraduate tuition and required fees will be paid to an Eligible Educational Institution when authorized by the Purchaser.

Contract

A contract under which a person [the purchaser] purchases from the Board on behalf of a beneficiary one or more tuition unit(s) that the Beneficiary is entitled to apply to the payment of the Beneficiary’s undergraduate tuition and required fees at an Eligible Educational Institution.

Contribute

Contributions are “completed gifts” for gift tax purposes and qualify for the $13,000 annual exclusion per Beneficiary that took effect Jan. 1, 2009. The program limits purchases to dollar equivalent of 600 Type I units and also limits the aggregate amounts in all Texas 529 accounts to $370,000 per Beneficiary.

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.

Direct Deposit or Automated Clearing House (ACH) Payment

Automatic periodic contributions via electronic transfer directly from the account of the payer to that of the party being paid.

Enrollment Period

Each year the Board sets an annual open Enrollment Period that typically begins on Sept. 1 and ends on the last day of February of the following year. However, newborns may be enrolled through July 31 of each year.

Federal Gift Tax Annual Exclusion

Contributions are “completed gifts” for gift tax purposes and generally qualify for the $13,000 annual exclusion per Beneficiary that took effect Jan. 1, 2009. Contributors to 529 plan accounts can elect to front-load their annual exclusion by contributing up to $65,000 at once (using a special five-year proration period and assuming no other gifts have been made to the Beneficiary), without incurring a federal gift tax. To effect the five-year election, the contributor must file an IRS Form 709.
If the Account Owner dies before the first day of the fifth calendar year, the portion of the prorated contributions allocable to calendar years following the year of death (except for earnings on such investment) would be includible in the estate of the Account Owner for federal estate tax purposes. More information can be found in the Plan Description. Purchasers should consult with a qualified tax advisor.

Federal Tax Free

Any earnings on prepaid tuition contracts are federal tax free if used to pay eligible tuition and required fees. Refunds of earnings on contract payments are subject to federal income taxes and may be subject to an additional 10% federal tax penalty. See Plan Description and Master Agreement for details.

Federal Taxes

Contract benefits are federal income tax free if they are used for tuition and required fees. Refunds of earnings are subject to federal income taxes and may be subject to an additional 10% federal tax penalty. See Plan Description and Master Agreement for details.

First Payment Due Date

The date the first payment is due after enrolling in the Plan and establishing a new Prepaid Tuition Contract. The First Payment Due Date serves as the anniversary date for establishing the Three-year Holding Period. The First Payment Due Date may be changed subsequently by the Board for future enrollment periods.

Installment Plan

This payment plan allows you to purchase a specific number of tuition units in monthly or annual installments at the price in effect, including the charge of an interest component, at the time the Purchaser enrolls in the installment plan. Installment plans are available for 5 or 10 years, or they may be calculated based on the number of years until the Beneficiary’s projected high school graduation date.

Interest Component

Installment plan payments include an interest component at a rate set annually by the Board. The interest component will be included in the purchase price of each tuition unit you buy. The interest component for the enrollment period beginning Sept. 1, 2013, is 8%.

Market Fluctuations

Market fluctuations will impact the value of tuition units that are transferred to another 529 plan, are used at schools that are not Texas public colleges or universities, or are refunded.

Maximum Texas Program Limit

The value of the number of tuition units combined with the value of all other accounts in 529 plans, administered by the state of Texas for a particular Beneficiary, is subject to a maximum value of $370,000. Unit purchases under a Prepaid Tuition Contract will only be permitted for a Beneficiary if the aggregate account balance, including the proposed contribution amount, of all Prepaid Tuition Contracts together with all accounts in other Texas-sponsored Section 529 Plans for the same Beneficiary does not exceed $370,000. The account balance may exceed $370,000 as a result of market growth but no new unit purchases or account contributions may be made until the value of all accounts for the Beneficiary is equal to or less than $370,000.

Member of Beneficiary's Family

As defined by IRS Publication 970, the Beneficiary’s family includes the Beneficiary’s spouse and any of the following other relatives of the Beneficiary:

  • Son, daughter, stepchild, foster child, adopted child, or a descendent of any of them.
  • Brother, sister, stepbrother, or stepsister.
  • Father or mother or ancestor of either.
  • Stepfather or stepmother.
  • Son or daughter of a brother or sister.
  • Brother or sister of father or mother.
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
  • The spouse of any individual listed above.
  • First cousin.

The new Beneficiary must be a Texas resident or the child of a parent who is both the Purchaser and a Texas Resident.

Newborn

For Beneficiaries under one year of age on the date of enrollment in the Plan, the enrollment period is extended through July 31.

Nonqualified Withdrawal

The earnings portion of a withdrawal, if any, or a portion of a withdrawal not used for qualified expenses may be subject to federal, state and local income taxes and an additional 10% federal income tax.

Pay-As-You-Go Plan

This payment plan allows you to purchase as many or as few tuition units as you like on a schedule that you choose. Note, tuition units purchased using the Pay-As-You-Go Plan can cost more in the future, because tuition unit prices are adjusted annually.

Plan Manager

The professional investment manager that administers the Plan and invests the assets of the Plan as directed by the Board. The Plan Manager is OFI Private Investments Inc., a subsidiary of OppenheimerFunds, Inc.

Prepaid Unit Maximum Amount

The maximum number of tuition units that you can purchase depends on the type of units. For Type I units, the maximum number of tuition units that may be purchased and assigned to a single Beneficiary is 600 tuition units. For Type II and III units, the maximum number of tuition units that may be purchased and assigned to a single Beneficiary is the dollar equivalent of 600 Type I units.

Purchaser

The person who establishes the Contract for a specified Beneficiary. There can only be one Purchaser for each Contract. The Purchaser is responsible for making payments in a timely manner and is the only person who may direct or receive refunds, or may direct rollovers, Contract changes, and changes in the designated Beneficiary except that the Contract may be cancelled or modified by the Plan. Friends and family who contribute to another person’s account are not the Purchaser and may not prevent, direct or receive refunds, may not direct rollovers, contract changes, or changes in the designated Beneficiary.

Qualified Higher Education Expenses

Qualified Higher Education expenses include tuition, fees and the cost of books, supplies and equipment required for the enrollment and attendance at an eligible educational institution and, certain room and board expenses. Qualified expenses also include certain additional enrollment and attendant costs for special needs beneficiaries.

Reduced Refund Value

Reduced Refund Value is limited to the lesser of (1) the price you paid for the unit, or (2) the price you paid for the unit, plus or minus net investment earnings or losses on that amount, and is net of any fees due and payable. This means the Reduced Refund Value will not include any positive net earnings, but can be less than the purchase price if there have been periods of negative returns in the market. Reduced Refund Value does not include any state-provided or procured matching contributions or earnings thereon.

Refund

For all units held at least three years (and for contracts cancelled due to the Beneficiary’s death, disability, receipt of scholarship or admission to a U.S. Military Academy), the Purchaser will receive the Refund Value, which is an amount equal to the price you paid for the unit plus or minus adjusted net investment earnings or losses on that amount, with the earnings rate set annually by the Board at a rate that is up to 2% less than the actual net earnings, is capped at 5%, and is net of any fees due and payable. The earnings portion of a Refund is also subject to federal income taxes plus a 10% federal tax as well as any state or local taxes that may apply. Earnings may only be paid on a refund subject to the actuarial soundness of the fund. Refund Value does not include any state-provided or procured matching contributions or earnings thereon.

For units that do not meet the three-year holding period requirement, the Purchaser will receive the Reduced Refund Value. It will be limited to the lesser of (1) the price you paid for the unit, or (2) the price you paid for the unit, plus or minus net investment earnings or losses on that amount, and is net of any fees due and payable. This means the Reduced Refund Value will not include any positive net earnings, but can be less than the purchase price if there have been periods of negative returns in the market. Reduced Refund Value does not include any state-provided or procured matching contributions or earnings thereon.

Refund Value

Refund Value is an amount equal to the price you paid for the unit plus or minus adjusted net investment earnings or losses on that amount, with the earnings rate set annually by the Board at a rate that is up to 2% less than the actual net earnings, is capped at 5%, and is net of any fees due and payable. The earnings portion of a Refund is also subject to federal income taxes plus a 10% federal tax as well as any state or local taxes that may apply. Earnings may only be paid on a refund subject to the actuarial soundness of the fund. Refund Value does not include any state-provided or procured matching contributions or earnings thereon.

Required Fees

Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study.

Residency

“Residency” means domicile within the State of Texas at the time the Purchaser enters into a Contract.

Rollover

A tax-free reinvestment from one qualified 529 Plan to another within a specific time frame. The time frame for a qualified rollover is usually 60 days provided that no other rollovers have occurred with respect to the Beneficiary within the prior 12 months. Please refer to the Plan Description for details regarding rolling into or out of the Plan.

The Board

The Board. By Texas law, the Board is comprised of seven members. The Comptroller of Public Accounts is the presiding officer of the Board. Two Board members are appointed by the Governor and four members are appointed by the Lieutenant Governor, with two of the Lieutenant Governor’s appointees coming from a list of persons recommended by the Speaker of the Texas House of Representatives. The appointed board members must have knowledge, skill, and experience in higher education, business, or finance. The Board is in the office of the Comptroller, and Comptroller employees selected by the Comptroller serve as the staff of the Board.

Three-Year Holding Period

Means the period of time that must transpire before a Beneficiary or Purchaser may redeem a Tuition Unit to pay for tuition and required fees at an eligible educational institution.

Transfer Value

Transfer value is limited to the lesser of: 1) the costs the unit would cover at a Texas public college; or, 2) the price paid for the unit, plus or minus the Plan’s net investment earnings or losses on that amount. Transfer value does not include any state-provided or procured matching contributions or earnings thereon.

Tuition Units

Tuition Units are the unit of measure used to purchase prepaid tuition. Generally, one unit represents one percent of the cost of tuition and required fees for 30 semester hours at the school that most closely matches the unit’s pricing structure.

Type I Units

The assigned value of a Type I Tuition Unit is 1% of the cost of the undergraduate resident tuition and required fees for the applicable academic year consisting of 30 semester credit hours with an assumed 15 hours per semester charged by the Texas public four-year college or university with the highest such tuition and required fee costs for that academic year. All other public colleges in Texas will require less than 100 Type I Units for an academic year consisting of 30 semester hours.

All types of Tuition Units can be used at any Texas public college or university or converted to the Transfer Value for use at Texas private or out-of-state colleges or universities or eligible career schools. Transfer Value (Transfer Outside of Plan) is limited to the lesser of (1) the costs the Tuition Unit would cover at a public in-state college or university or (2) the original purchase price of the Tuition Unit plus or minus the Plan’s net investment earnings or losses on that amount. See the Tuition Unit Pricing Schedule and Unit Value Redemption Guide to determine the number of Tuition Units required for redemption at four-year and two-year Texas public colleges or universities in the current year.

Type II Units

The assigned value of a Type II Tuition Unit is 1% of the Weighted Average cost of undergraduate resident tuition and required fees for the applicable academic year consisting of 30 semester credit hours with an assumed 15 hours per semester charged by General academic teaching institutions (four-year public colleges) in Texas. Type II Tuition Units cover the same four-year Texas public colleges as Type I Tuition Units, but only pay the Weighted Average Cost of undergraduate resident tuition and required fees at Texas public four year colleges and universities. Any difference not covered by redemption of Tuition Units must be paid by the Beneficiary or the Purchaser either through the redemption of additional Tuition Units or through alternative funding methods. The percentage of tuition and required fees covered will vary depending on the college or university your Beneficiary attends and the extent to which its costs are above or below the Weighted Average cost at Texas public four-year colleges and universities.

All types of Tuition Units can be used at any Texas public college or university or converted to the Transfer Value for use at Texas private colleges and universities or out-of-state colleges or universities or eligible career schools. Transfer Value (Transfer Outside of Plan) is limited to the lesser of (1) the costs the Tuition Unit would cover at a public in-state college or university or (2) the original purchase price of the Tuition Unit plus or minus the Plan’s net investment earnings or losses on that amount. See the Tuition Unit Pricing Schedule and Unit Value Redemption Guide to determine the number of Tuition Units required for redemption at four-year and two-year Texas public colleges or universities in the current year.

Type III Units

The assigned value of a Type III Tuition Unit is 1% of the Weighted Average cost of undergraduate resident tuition and required fees for the applicable academic year consisting of 30 semester credit hours with an assumed 15 hours per semester charged by two-year institutions of higher education for residents of the taxing jurisdiction of the two-year college (two-year public junior college/public technical institute) in Texas, disregarding any portion of the tuition charged by a public junior college to a resident of this state who does not reside within the taxing jurisdiction of the junior college. The number of hours paid will vary depending on the college your Beneficiary attends and the extent to which its costs are above or below the Weighted Average cost at Texas public two-year colleges.

All types of Tuition Units can be used at any Texas public college or university or converted to the Transfer Value for use at Texas private colleges and universities or out-of-state colleges or universities or eligible career schools. Transfer Value (Transfer Outside of Plan) is limited to the lesser of (1) the costs the Tuition Unit would cover at a public in-state college or university or (2) the original purchase price of the Tuition Unit plus or minus the Plan’s net investment earnings or losses on that amount. See the Tuition Unit Pricing Schedule and Unit Value Redemption Guide to determine the number of Tuition Units required for redemption at four-year and two-year Texas public colleges or universities in the current year.

UGMA/UTMAs

A way you can transfer assets to a minor under the Uniform Gifts to Minors Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA). Most states have established these acts, allowing adults to transfer assets to a minor.

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow a minor to own securities in an account without forcing families to underwrite the expense of having an attorney draw up a special trust.

While UGMA and UTMA accounts are not specifically designed to provide financing for college, many investors use them for this purpose because the assets become available to the minor when he or she reaches the age of majority specified under the state’s UGMA or UTMA law.

Remember, the UGMA/UTMA custodian loses all control of the funds when the minor reaches the age of majority. Depending on the state, that could be 18 or 21 years of age. And the custodian has limited control before the minor reaches the age of majority. The custodian cannot change the Beneficiary of an UGMA/UTMA account.

Weighted Average

“Weighted Average” is calculated according to a formula established by Texas law. The Plan will calculate two Weighted Averages: (1) A Weighted Average cost of undergraduate resident tuition and required fees for four-year public senior colleges or universities in Texas, and (2) a Weighted Average cost of undergraduate resident tuition and required fees at two-year public institutions of higher education in Texas (public junior colleges, public state colleges, and public technical institutes) paid by residents of the taxing jurisdiction of the two-year public institution. Weighted Averages are essentially the average cost of undergraduate resident tuition and required fees at these public colleges and universities in Texas (institutions) and are calculated by 1) multiplying the average amount of the institution’s undergraduate resident tuition and required fees for an academic year consisting of 30 semester credit hours by the number of full-time equivalent undergraduate resident students at the institution; 2) adding together the products computed in 1) for each institution; and 3) dividing the sum determined in 2) by the total number of full-time equivalent undergraduate resident students at all institutions.