Frequently Asked Questions
Find answers below to some of the basic questions about how EMMA works, what are
the key features of municipal securities, how you should read an official statement,
what is an advance refunding, and how to understand the price and other terms of
a bond trade.
529 Plan Basics
- What is a 529 college savings plan?
529 college savings plans are established by states under Internal Revenue
Code Section 529 for the purpose of providing a program for individuals wishing
to invest to pay for qualified higher education expenses of a beneficiary.
Usually but not always structured similar to a mutual fund or fund of funds,
529 college savings plans are offered by virtually every state.
- Why are 529 college savings plans
considered municipal securities?
Even though many 529 college savings plans invest their assets in mutual funds,
exchange-traded funds or other types of instruments that are not themselves municipal
securities, the investment you make in the 529 college savings plan is with a state
plan that is the issuer of the investment interest you acquire. This state role exempts
529 college savings plans from the federal regulations applicable to mutual funds but
also makes sales by investment firms of 529 college savings plan interests
subject to MSRB rules.
- What is the difference between a
529 college savings plan and a mutual fund?
Most 529 college savings plans operate much like a traditional mutual fund but with
some important differences. Although 529 college savings plan assets often are invested
in traditional mutual funds, the shares or units that a 529 college savings plan
participant acquires when he or she makes an investment are those of the plan itself,
not of the underlying mutual funds. In this case, the issuer of the shares or units
is the state or its instrumentality, not a mutual fund company. As a result, the federal
securities laws treat 529 college savings plans differently from mutual funds. Among
other things, 529 college savings plans are not subject to the registration and
reporting requirements that mutual funds must meet, and 529 college savings plans
also are not required to meet the various restrictions and qualifications that mutual
funds must meet under the Investment Company Act of 1940 and related rules of the
Securities and Exchange Commission.
Another important difference is that 529 college savings plans must meet a series
of requirements established under Internal federal tax laws in order for investors
to realize the tax benefits offered by investing in such plans. Such requirements
involve, among other things, restricting the use of invested funds to pay for qualified
higher education expenses, the amount that may be invested, changes in investments
or beneficiaries, and a variety of other matters. Also, some states offer state
tax or other advantages for investing in the investor's home state 529 college savings
plan. The specific features of each state's plan and how the federal and state tax
laws apply to such plans are described in the plan disclosure document.
- What is the difference between a direct-sold
and an advisor-sold 529 college savings plan?
These terms refer to the manner in which an investor makes an investment in a 529
college savings plan. Some 529 college savings plans allow investors to invest directly
with the plan by making purchases directly through the state and its personnel or
through the program manager hired by the state to assist it in operating its 529
college savings plan. These are generally referred to as a "direct-sold" plan. Sales
made directly by state personnel are not subject to MSRB rules while sales through
the program manager generally are executed through the manager's affiliated broker-dealer
and are subject to the MSRB's investor protection rules. Many 529 college savings
plans also allow (and in some cases require) investors to invest with the assistance
of an investment advisor or a broker-dealer. Such "advisor-sold" plans typically
provide for a separate commission or other payment to the investment professionals
working with the investor, and all such sales are subject to the MSRB's investor
- What is the difference between a
529 college savings plan and a 529 prepaid tuition plan?
Some states offer what are known as "prepaid tuition plans," which involve the prepayment
of college expenses at current prices for attendance by the student at some point
in the future. These prepaid plans are typically structured as contracts whereby the investor
purchases directly from the state units or credits that are later applied to the cost of college
when the student actually attends college. Broker-dealers are rarely involved in these arrangements
and these prepaid tuition plans generally are not subject to MSRB rules. Information
about prepaid tuition plans generally is not available on EMMA.
- Are there other sources of information
about 529 college savings plans?
There are numerous sources for information on 529 college savings plans, as well
as 529 prepaid tuition plans. The College Savings Plans Network, a non-profit affiliate
of the National Association of State Treasurers, maintains a website with information
regarding many 529 college savings plans at www.collegesavings.org. In addition, several
commercial Internet web sites have been developed to provide information
regarding 529 college savings plans and other education savings options. These can
easily be found by using an Internet search engine and conducting a search using
terms such as "college savings plan", "saving for college" or "529 plan", among
others. The MSRB does not endorse any of these sites, nor does it review such sites
to ensure that information provided is fair, accurate or complete. To the extent
that any of these sites are operated by broker-dealers subject to the jurisdiction
of the MSRB, such sites must comply with MSRB advertising rules.
The descriptions included in the FAQs above are generalizations and do not necessarily
accurately represent the terms of any specific security. You must read the disclosure
materials and other relevant documents to fully understand your security.