SCHOLARSHARE FREQUENTLY ASKED QUESTIONS

1. What is ScholarShare?

ScholarShare is California's official 529 College Savings Plan. 529 plans are tax advantaged savings vehicles named for the section of Internal Revenue Code under which they were created. Earnings on 529 investments grow tax-deferred, and disbursements, when used for qualified higher education expenses, are federal and state tax-free. Other advantages of 529 plans include:

• Versatility - Money saved in a 529 may be used at most accredited two- and four-year colleges and universities, many vocational-technical schools nationwide, and eligible foreign institutions
• Flexibility - When it's time to pay for school, that money can be used for qualified higher education expenses, including tuition and fees, books, supplies and equipment required for enrollment, and room and board subject to certain limitations at eligible educational institutions

2. Why is a ScholarShare College Savings Plan Account a good idea?

ScholarShare is a great way to start saving for college for the following reasons:

• Accounts may be opened online with as little as $50, or $15 with automatic monthly contributions
• No annual account maintenance fee
• No income limit
• High contribution limit of $320,000 per beneficiary

3. Who can open and invest in a ScholarShare Account?

Anyone with a child in their life, including parents, grandparents, aunt, uncles, and family friends. The account owner must be an adult or emancipated minor and a U.S. citizen or legal resident, demonstrated by having a Social Security Number or Federal Taxpayer Identification Number. A child can have a custodian as an account owner if the account is opened with the proceeds of an UGMA or UTMA account. There are no state residency requirements on a person's ability to contribute to an account. and can take advantage of possible gift and estate tax benefits. Generally, anyone can make a contribution to a 529 account like ScholarShare for any beneficiary. However, there can only be one account owner per account and account owners control the distribution of assets. You should contact the 529 plan of your choice to determine any restrictions that may apply.

4. Who can be a beneficiary in a ScholarShare Account?

Generally, anyone can be named the beneficiary regardless of their relationship to the person who establishes the account. You can even establish an account with yourself as the named beneficiary. The only requirement is that the beneficiary must be a U.S. citizen or legal resident, demonstrated by having a Social Security Number or Federal Taxpayer Identification Number.

5. Does my child have to go to an in-state school?

No. Funds can be used at any eligible educational institution in the country to pay for qualified higher education expenses. "Eligible educational institutions" are accredited post-secondary educational institutions offering credit toward a bachelor's degree, an associate's degree, a graduate level or professional degree, or another recognized post-secondary credential. Certain proprietary institutions and post-secondary vocational institutions and certain institutions located in foreign countries are also eligible educational institutions. To be an eligible educational institution, the institution must be eligible to participate in U.S. Department of Education student aid programs. You can find a list of eligible educational institutions at www.fafsa.ed.gov.

6. What are "qualified higher education expenses"?

Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance. Room and board expenses are also eligible for students enrolled half-time or more based on the current allowance for room and board determined by the eligible educational institution for federal financial aid purposes, or actual invoice amount charged by the institution to the beneficiary, if greater.

In addition, qualified higher education expenses also include expenses of a special needs beneficiary that are necessary in connection with his or her enrollment or attendance at an eligible educational institution. However, all qualified higher education expenses are reduced to the extent that such expenses are taken into account in claiming the Hope Scholarship Credit or Lifetime Learning credit. For more information please reference IRS Publication 970 (www.irs.gov/publications/p970/ch08.html).

7. What if my child is in high school? Is it too late to open a 529 account?

It is never too late to save for higher education. You may open a 529 account like ScholarShare for an individual of any age, and the account may be used immediately or it may be used for graduate or other professional school in the future.

8. What if my beneficiary receives a scholarship or attends a U.S. Military Academy?

You can withdraw funds up to the scholarship amount or the costs of an advanced education at a U.S. Military Academy (as determined by law) without paying applicable federal or California state penalty taxes. However, earnings (but not contributions) on the amount you withdraw will still be subject to applicable taxes, including federal and state income tax. You can also use your funds to pay for expenses not covered by the scholarship, such as certain room and board costs, books and other required supplies, or you may transfer the account to another beneficiary who is a member of the family.

9. What if my child doesn't go to college?

You have several options available if the beneficiary decides not to go to college:

• Change the beneficiary to a member of the beneficiary's family.
• Defer use of your savings and leave funds invested in the account in case the beneficiary changes his or her mind in the future.
• Withdraw the assets in your account as a "non-qualified" distribution (a distribution that is not used for qualified higher education expenses). Earnings (but not contribution amounts) would be subject to federal and California state income tax plus a federal and California state penalty tax on the earnings

10. Can a 529 account be rolled over to another 529 program?

Yes. The account owner can rollover funds from one state's 529 plan to another 529 plan for the same beneficiary once every 12 months. The account owner can rollover a 529 account to another plan at any time for a new beneficiary. Contact the state's 529 plan for additional details about the specific rollover process to ensure that it is handled properly.

11. Are withdrawals from a 529 plan exempt from federal or state income tax?

As long as the withdrawal is used to pay "qualified higher education expenses", the earnings portion of the withdrawal is exempt from federal income tax. For California taxpayers, qualified withdrawals from ScholarShare are also exempt from state income tax. As a general rule, you should contact the program in your state to determine the specific state tax rules that apply to investing in a 529 plan. In California, state tax exemptions on qualified withdrawals mirror federal tax laws. For more information, contact your tax advisor.

12. Are there other tax benefits with the program?

An individual may contribute up to $13,000 annually ($26,000 for married couples filing jointly) without paying gift taxes or filing a gift tax return (assuming no other gifts are made to the beneficiary in the same year). You also may accelerate up to five years' worth of the annual exclusion amount and reduce the value of your estate by contributing up to $65,000 ($130,000 for married couples filing jointly) per beneficiary (this amount is subject to "add-back" in the event of the participant's death within five years and also assumes no other gifts are made to the same beneficiary during the same period). Taking advantage of the five-years gifting requires filing this election with the Internal Revenue Service on Form 709.

13. How will participating in a 529 plan affect federal financial aid eligibility?

When it comes to financial aid, ANY assets that you or the beneficiary own (not just 529 plan assets) can affect your eligibility for need-based financial aid. With 529 plans, your account is considered to be an asset of the account owner. Assuming the account owner is the parent, this means that, on average, about 5.6 percent of the value of the account is considered in determining the Expected Family Contributions (EFC). The EFC is the amount the family of the beneficiary is expected to pay toward that beneficiary's higher education. With many other savings vehicles, such as a custodial accounts or assets that are in the name of the student, 20 percent of the value of the assets is considered in determining the EFC. Assets in 529 accounts owned by grandparents, aunts, uncles or any other individuals besides the parent/guardian and student are not considered in determining the EFC.

Remember, the majority of need-based financial aid is in the form of student loans, so whatever savings you accumulate for college expenses may help reduce the parent's or student's future debt load.

The ScholarShare College Savings Plan is administered by the ScholarShare Investment Board, an agency of the State of California. Neither the principal deposited nor the investment return is guaranteed by the State of California, ScholarShare Investment Board, Fidelity Investments or any affiliate thereof, or the federal government or any agency thereof. Units of the Portfolios are municipal securities and may be subject to market volatility and fluctuation. For more information, please visit www.scholarshare.com.