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‘Tis the season for giving.

Find out how to give the gift of education to someone you love.


Glossary



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

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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.Back to top
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.Back to top
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.Back to top
$16,000
Contributions are “completed gifts” for gift tax purposes and qualify for the $16,000 annual exclusion per Beneficiary.>Back to top
$80,000
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.Back to top
Benficiary
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.Back to top
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.Back to top
Contribute
Contributions are “completed gifts” for gift tax purposes and qualify for the $16,000 annual exclusion per Beneficiary. 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.Back to top
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.Back to top
Direct Deposit ACH payment
Automatic periodic contributions via electronic transfer directly from the account of the payer to that of the party being paid.Back to top
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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.Back to top
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.Back to top
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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.Back to top
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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.Back to top
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:

1. Son, daughter, stepchild, foster child, adopted child, or a descendent of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. 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.Back to top
Newborns
For Beneficiaries under one year of age on the date of enrollment in the Plan, the enrollment period is extended through July 31.Back to top
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.Back to top
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 NorthStar Financial Service Group, LLC.Back to top
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, and may not direct rollovers, contract changes, or changes in the designated Beneficiary.Back to top
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Qualified Higher Education Expenses
Qualified Higher Education Expenses include tuition; fees; 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.Back to top
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.Back to top
Request a 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.Back to top
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.Back to top
Residency
Residency means domicile within the State of Texas at the time the Purchaser enters into a Contract.Back to top
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.Back to top
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.Back to top
Three-Year Holding Period
Three-Year Holding Period is 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.Back to top
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.Back to top
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.Back to top
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.Back to top
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.Back to top
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.
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UGMA/UTMA
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 a UGMA/UTMA account.Back to top
Weighted Average Cost
"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.Back to top



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