The Schwab 529 College Savings Plan

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1 The Schwab 529 College Savings Plan Rely on Schwab s expertise to help you plan for your child s college education. Maximize the benefits of a 529 Plan What is a 529 Plan? A 529 Plan is a state-sponsored, tax-advantaged investment vehicle that allows parents, relatives, and friends to plan and invest for a child s college education. Residents of any state can invest in the Schwab 529 College Savings Plan. Tax benefits Tax-free growth With a 529 Plan, all earnings are free from federal income tax so your investment can grow at an even faster pace than it would in a taxable account. Tax-free withdrawals You pay no federal taxes on withdrawals as long as they are used for qualified education expenses. 1 The availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose or timing of distributions, or other factors. Special gift tax exclusion You can contribute a lump sum of up to $65,000 ($130,000 per couple) for each beneficiary in a single year without incurring gift tax. 2 High contribution limits A 529 Plan allows for much higher contributions than other education savings options. Additional advantages Account control As the account owner, you maintain control over the account. You make the investment selection and can change it once per calendar year as authorized by the IRS, or upon a change in beneficiary. You can withdraw the funds (subject to taxes and penalties) or change the beneficiary to another qualified family member at any time. Flexibility The beneficiary can use funds to attend any accredited university or college, or an approved vocational program, generally anywhere in the United States. Financial aid 529 Plans have a minimal impact on financial aid. Only 5.6% of the value of the account is considered the parent s assets for financial aid calculations. There is no impact if the account is owned by another relative such as a grandparent, aunt, or uncle. See page 6 for important legal information. The Schwab 529 College Savings Plan Page 1 of 6

2 Features of the Schwab 529 College Savings Plan No account service fee The Schwab 529 Plan has no account service or enrollment fee. National eligibility The Schwab 529 Plan is sponsored by the State of Kansas and accounts may be opened by residents of any state. Low account minimums The minimum to open an account is $1,000 ($250 for Kansas residents) or $50 per month ($25 per month for Kansas residents) if you establish an automatic investment plan. For a disciplined college savings approach, consider setting up automatic investments. Experienced investment management Portfolios are managed by American Century Investment Services, Inc., a well-known and highly respected Schwab Mutual Fund OneSource participant. 3 High contribution limit $300,000 per beneficiary. 4 Schwab 529 Plan asset allocation Schwab 529 Plan allocation portfolios Only the Schwab 529 Plan gives you the ability to invest in portfolios constructed on Schwab s asset allocation models. These models are designed to be diversified across asset classes to meet the full spectrum of investor profiles, from conservative to aggressive. In addition, the Schwab 529 Plan includes an option that invests 100% in the Schwab Value Advantage Money Fund as an opportunity for investors who may be seeking stability of capital for a shorter-term time horizon. AGGRESSIVE MODERATELY AGGRESSIVE MODERATE MODERATELY CONSERVATIVE CONSERVATIVE SHORT-TERM MONEY MARKET For long-term investors who want high growth potential and don t need current income. May entail substantial year-to-year volatility in value in exchange for potentially high long-term returns. For long-term investors who want good growth potential and don t need current income. Entails a fair amount of volatility, but not as much as a portfolio invested exclusively in stocks. For long-term investors who don t need current income and want some growth potential. Likely to entail some fluctua tions in value, but presents less volatility than the overall stock market. For investors who seek current income and stability, with some modest potential for increase in the value of their investments. For investors who seek current income and stability and are less concerned about growth. For investors who want current income and a high degree of stability in their investments. For risk-averse investors who seek capital preservation and current income. Stocks 95% Large-Cap Stocks 38.5% Small-Cap Stocks 20% Multi-Cap Stocks 11.5% Int l Stocks 25% Bonds 0% MONEY MKT. 5% Stocks 80% Large-Cap Stocks 35% Small-Cap Stocks 15% Multi-Cap Stocks 10% Int l Stocks 20% Bonds 15% MONEY MKT. 5% Stocks 61% Large-Cap Stocks 28% Small-Cap Stocks 10% Multi-Cap Stocks 8% Int l Stocks 15% Bonds 34% MONEY MKT. 5% Stocks 40% Large-Cap Stocks 19.5% Small-Cap Stocks 5% Multi-Cap Stocks 5.5% Int l Stocks 10% Bonds 50% MONEY MKT. 10% Stocks 20% Large-Cap Stocks 12% Small-Cap Stocks 0% Multi-Cap Stocks 3% Int l Stocks 5% Bonds 50% MONEY MKT. 30% Stocks 0% Large-Cap Stocks 0% Small-Cap Stocks 0% Multi-Cap Stocks 0% Int l Stocks 0% Bonds 40% MONEY MKT. 60% Stocks 0% Large-Cap Stocks 0% Small-Cap Stocks 0% Multi-Cap Stocks 0% Int l Stocks 0% Bonds 0% MONEY MKT. 100% Before investing, carefully consider the Plan s investment objectives, risks, charges, and expenses. This information and more about the Plan can be found in the Schwab 529 Guide and Participation Agreement, available from Charles Schwab & Co., Inc. at or , and should be read carefully before investing. If you are not a Kansas taxpayer, consider before investing whether your or the beneficiary s home state offers a 529 Plan that provides its taxpayers with state and other benefits not available through this Plan. As with any investment, it is possible to lose money by investing in this Plan. The Schwab 529 College Savings Plan Page 2 of 6

3 Portfolio composition Schwab 529 Plan portfolios Each of these professionally managed portfolios includes fund families in Schwab s Mutual Fund OneSource service, as well as Schwab Affiliate Funds. 5 The Schwab 529 Plan employs multiple fund families to diversify across securities, industry sectors, and investment styles. Combining different styles and strategies in a single portfolio helps to spread out investment risk. The selected funds come from the following companies: Underlying Funds American Century Investments Laudus Funds PIMCO Funds American Beacon Funds Schwab Funds Baron Funds Transamerica Funds Metropolitan West Asset Management Aggressive Aggressive Moderate Conservative Conservative Short-Term Money Market Large-Cap Stocks Transamerica Diversified Equity Fund 17.0% 15.0% 12.0% 8.5% 5.0% 0.0% 0.0% Schwab Core Equity Fund 8.0% 7.5% 6.0% 4.0% 2.5% 0.0% 0.0% American Century Equity Growth Fund 8.0% 7.5% 6.0% 4.0% 2.5% 0.0% 0.0% American Beacon Large Cap Value Fund 5.5% 5.0% 4.0% 3.0% 2.0% 0.0% 0.0% Total Large-Cap Stocks 38.5% 35.0% 28.0% 19.5% 12.0% 0.0% 0.0% Small-Cap Stocks* American Century Small Cap Value Fund 13.0% 10.0% 6.5% 3.0% 0.0% 0.0% 0.0% Baron Growth Fund 7.0% 5.0% 3.5% 2.0% 0.0% 0.0% 0.0% Total Small-Cap Stocks 20.0% 15.0% 10.0% 5.0% 0.0% 0.0% 0.0% Multi-Cap Stocks American Century Value Fund 11.5% 10.0% 8.0% 5.5% 3.0% 0.0% 0.0% Total Multi-Cap Stocks 11.5% 10.0% 8.0% 5.5% 3.0% 0.0% 0.0% International Stocks American Century International Growth Fund 8.5% 7.0% 5.0% 3.5% 2.0% 0.0% 0.0% Laudus International MarketMasters Fund 16.5% 13.0% 10.0% 6.5% 3.0% 0.0% 0.0% Total International Stocks 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 0.0% Bonds PIMCO Total Return Fund 0.0% 5.0% 11.0% 16.0% 16.0% 13.0% 0.0% Metropolitan West Total Return Bond Fund 0.0% 3.0% 7.0% 10.0% 10.0% 9.0% 0.0% American Century International Bond 0.0% 2.0% 4.0% 6.0% 6.0% 5.0% 0.0% American Century Inflation-Adjusted Bond Fund 0.0% 0.0% 5.0% 5.0% 5.0% 3.0% 0.0% American Century Ginnie Mae Fund** 0.0% 5.0% 7.0% 13.0% 13.0% 10.0% 0.0% Total Bonds 0.0% 15.0% 34.0% 50.0% 50.0% 40.0% 0.0% Money Market Funds Schwab Value Advantage Money Fund 5.0% 5.0% 5.0% 10.0% 30.0% 60.0% 100.0% Total Money Market Funds 5.0% 5.0% 5.0% 10.0% 30.0% 60.0% 100.0% Total 100% 100% 100% 100% 100% 100% 100% * Historically, small-cap stocks have been more volatile than the stocks of larger, more established companies. Investing in international investments may involve special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards, and other monetary and political risks associated with future political and economic developments. Investing in emerging markets may accentuate these risks. The value of portfolios that utilize bonds will be susceptible to loss of principal with increases in interest rates. Use of derivatives may involve certain costs and risks, such as liquidity risk, interest rate risk, market risk, credit risk, and management risk. Portfolios investing in derivatives could lose more than the principal amount invested in those instruments. ** Investments in mortgage securities are subject to prepayment risks which may result in greater share price volatility. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds. The Schwab 529 College Savings Plan Page 3 of 6

4 Selecting the portfolio that s right for you Choose a static portfolio or an age-based option. Static portfolio You can select one of seven static portfolios based on your investment objectives, risk tolerance, and time horizon: Aggressive, Aggressive, Moderate, Conservative, Conservative, Short-Term, and Money Market. Your investment will stay in the same portfolio until you change it. Age-based option Another approach is to use one of four age-based tracks Aggressive, Aggressive, Moderate, and Conservative. With this option, your investment automatically moves through some or many of the portfolios, becoming more conservative as the beneficiary approaches college and ending in short-term at age 18. This hands-off approach allows you to pick a risk track that adjusts itself over the life of your investment. However, if you want to be in the money market portfolio during college, you ll need to move your investment there when the time comes. The underlying funds and asset allocations in the portfolios are the same whether you choose the static option or age-based approach. The only difference is that the age-based option automatically moves through portfolios, becoming more conservative over time. You may change your investment portfolio selection once per calendar year as authorized by the IRS, or if you change the beneficiary. The age-based track migrations do not count as an investment change under the once-per-calendar-year IRS rule. To learn more about these portfolios, please review the Schwab 529 College Savings Plan Guide and Participation Agreement. Age-Based Tracks Years of Funding (based on current age of beneficiary) Age of Child Risk Track 10 Years 7 9 Years 4 6 Years 1 3 Years After College Begins 8 Years Old or Younger 9 11 Years Old Years Old Years Old 18 Years Old or Older Aggressive track Aggressive Aggressive Moderate Conservative Short-Term aggressive track Aggressive Aggressive Moderate Conservative Short-Term Moderate track Moderate Conservative Conservative Conservative Short-Term conservative track Conservative Conservative Conservative Conservative Short-Term Portfolio management As the Program Manager, American Century Investments, in conjunction with the Program Administrator, has selected specific mutual funds for each asset class in the Schwab 529 Plan portfolios designed to achieve the appropriate balance of risk and growth in an effort to meet target investment objectives. American Century Investments will rebalance the portfolio holdings as necessary to maintain a portfolio s target asset allocation and investment strategy. The Schwab 529 College Savings Plan Page 4 of 6

5 Important information Important information about opening a Schwab 529 College Savings Plan account: Eligibility Any U.S. citizen or resident, regardless of age or income, may establish a Schwab 529 account and anyone may contribute to the account. Portfolio fee The portfolio fee includes a program management fee plus underlying fund expenses. The portfolio fee for the Schwab 529 Plan ranges from 0.45% to 1.41%, depending on the asset allocation of the portfolio. Contribution deadline To qualify for the gift tax exclusion, your contribution must be received by December 31. If you are a Kansas taxpayer and wish to take a state tax deduction for your contribution, your contribution must be postmarked by December 31. State tax benefits Account owners who are Kansas taxpayers may receive an annual adjusted gross income deduction of up to $3,000 ($6,000 if married, filing jointly) per beneficiary for contributions made to the program. Residents of Kansas, Pennsylvania, Arizona, Missouri, and Maine are eligible for an annual gross income deduction for contributions to any statesponsored 529 plan. Deduction amounts vary by state. Custodial transfers You may be able to transfer all or part of a Schwab custodial account to the Schwab 529 Plan if you are the custodian for a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. This may result in a taxable transaction, but any future earnings may grow tax-free. 6 Because custodial assets are irrevocable gifts, the minor will be the 529 account owner and beneficiary, and you will be the responsible individual on the account. When the minor reaches legal adulthood (varies by state, typically age 18), the minor will have full control of the account. How to contact us Call Visit a Schwab branch near you. Go to to enroll online or to estimate your college costs. The Schwab 529 College Savings Plan Page 5 of 6

6 Brokerage Products: Not FDIC-Insured No Bank Guarantee May Lose Value American Beacon Funds are distributed by Foreside Fund Services, LLC. American Century Funds are distributed by American Century Investment Services, Inc. Baron Funds are distributed by Baron Capital, Inc. Metropolitan West Funds are distributed by PFPC, Inc. PIMCO Funds are distributed by Allianz Global Investors Distributors LLC. Schwab Funds and the Laudus MarketMasters Funds are distributed by Charles Schwab & Co., Inc. Transamerica Funds are distributed by Transamerica Capital, Inc. The Schwab 529 College Savings Plan is available through Charles Schwab & Co., Inc. and is managed by American Century Investment Services, Inc. The Plan was created by the Kansas State Legislature under the provisions of Section 529 of the Internal Revenue Code and is administered by Kansas State Treasurer Dennis McKinney. Notice: Accounts established under the Schwab 529 Plan, and their earnings, are neither insured nor guaranteed by the State of Kansas, the Kansas State Treasurer, American Century Investments, or Charles Schwab & Co., Inc. ( Schwab ). Accounts established under the Schwab 529 Plan are domiciled at American Century Investments and not Schwab. American Century Investment Services, Inc., distributor and underwriter. American Century Investment Services, Inc. receives remuneration from fund companies, including PIMCO Funds, American Beacon Advisors, Baron Funds, and Metropolitan West Management, LLC for recordkeeping, shareholder services, and other administrative services associated with funds held in the Schwab 529 Plan portfolios. 1 The earnings portion of a non-qualified withdrawal is subject to federal and state income tax and a 10% penalty. State tax treatment of earnings may vary. Check with your tax advisor for rules on your state s tax treatment. 2 To qualify for the special gift tax exclusion, you need to file a gift tax return to treat the gift as if it were made in equal payments over five years. To avoid gift tax, you should make no additional gifts to the beneficiary during those five years. 3 Schwab receives remuneration from fund companies in the Mutual Fund OneSource service for recordkeeping, shareholder services, and other administrative services when fund shares are held at Schwab. 4 The contribution limit is reached when the entire value of all Kansas 529 Plans for one beneficiary reaches $300,000 through a combination of contribution and account appreciation. The State Treasurer may review and adjust the contribution limit as needed. 5 Schwab Affiliate Funds include Schwab Funds and Laudus Funds. Schwab Funds and Laudus Funds are advised by Charles Schwab Investment Management, Inc. ( CSIM ), an affiliate of Schwab. Schwab and CSIM receive compensation from these Schwab Affiliate Funds for providing investment advisory and transfer agency services, as well as shareholder and other fund services. The amount of such compensation is disclosed in the prospectus for each fund. The aggregate fees that Schwab or CSIM receives from Schwab Affiliate Funds are generally greater than the remuneration Schwab receives from non-affiliated mutual funds. 6 The minor on the custodial account must be named as the account owner and beneficiary for the account, and a responsible individual will need to be named. When the minor reaches legal adulthood, the minor will have full control of the Schwab 529 Plan account and the responsible individual will no longer have authority on the account. Check with your tax advisor for more information regarding custodial account transfers. Automatic investment plans do not assure a profit and do not protect against loss in a declining market. Printed on 30% post-consumer recycled paper Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CS ( ) SLS (06/10) The Schwab 529 College Savings Plan Page 6 of 6