Transcript 529 Plans
529 Plans
“QUALIFIED TUITION PROGRAM”
What is a 529 Plan?
Congress created them in 1996; named after section
529 of the Internal Revenue code
Typically operated by state or educational institution
Earnings not subject to federal tax and generally not
subject to state tax when used for qualified education
expenses
Contributions to 529 plans are not deductible
Can be spent at most accredited college and graduate
schools, including professional and trade schools
American Recovery and Reinvestment Act of 2009
529 Plan Setup
Must be over 18, designate a beneficiary of the plan
No income restriction on the contributor or
beneficiary
No limit on the number of plans a person can set up
Changing beneficiaries
No tax consequences
Funds are not taxable if rolled over to another plan for the
benefit of the same beneficiary or the benefit of a member of
the beneficiary’s family
Contribution Limits
Cannot exceed the amount necessary to provide for
the qualified education expenses of the beneficiary
States enforce specific total contribution limits
Contribution limit applies even if multiple people
open an account for one beneficiary
Prepaid Tuition vs. College Savings Investment
Prepaid tuition—lock in current costs of tuition in
place of future prices, which rise every year
College savings investment—more popular, cover
expenses ranging from room and board to tuition to
books
Investment Options
In most cases, the contributed money will be
invested in large, widely held mutual funds
Age-based option
“Static” choice
Cash-like options
Fees Related to 529 Plans
Advisor Fee
Total Asset-Based Fee
Program Management, Maintenance and
Administrative Fees
Underlying Investment Fees
“9 Mistakes” – Forbes
Forgetting about the fees
Investing in a prepaid without reading the fine print
Not taking advantage of gift tax exclusion
Withdrawing too much money
Using distributions to cover unqualified expenses
Setting it and forgetting it
Pulling out money to cover other expenses
Passing up free rewards
Starting too late
Kiplinger’s Best
Hands-on investors: Utah Educational Savings Plan
Low fees: New York’s 529 College Savings Program
Age-based for aggressive investors: Maryland College
Investment Plan
Age-based for conservative investors: New York
(may be too conservative) or Utah
Nervous nellies: Virginia’s CollegeWealth plan with
Union First Market Bank
Hand-holding: Virginia’s College America Plan
MFS 529 Savings Plan (Advisor Sold)
Program Manager: MFS Fund Distributors, Inc.
Maximum contribution: $310,000
Minimum contribution start-up: $250
Age-based: 5 portfolios of underlying mutual funds
Static: 4 multi-fund options; 14 individual-fund options
State tax deduction: up to $2,265 individual, $4,530 married couple
filing jointly
Fees:
Enrollment or application: none
Account maintenance: $25 annually for accounts < $25,000, waived for residents
Program management: .10% management fee, various other fees
Underlying investments: 0.40%-0.93% (age-based/static) 0.33%-0.93%
individual-fund
Asset-Backed expense ratio: Class A (0.73%-1.44%) Class B (1.56%-2.19%) Class
C (1.57%-2.19%)
Oregon College Savings Plan (Consumer)
Program Manager: TIAA-CREF Tuition Financing, Inc.
Maximum contribution: $310,000
Minimum contribution: lump-sum $25, automatic payroll
deduction $15
Age-based: 9 portfolios of underlying mutual funds
Static: 7 multi-fund options; 6 single-fund options
State tax deduction: up to $2,265 individual, $4,530 married
couple filing jointly
Fees:
Enrollment or application: none
Account maintenance: none
Program management: .23% management fee
Underlying investment: 0.09%-0.49%
Asset-backed expense ratio: 0.29%-0.71%
Additional Resources
Morningstar’s 529 Plan Center
http://529.morningstar.com/state-map.action
College Savings Plans Network
http://www.collegesavings.org/index.aspx
savingforcollege.com
State by State 529 Plan Guide
http://sites.savingforcollege.com/kiplinger/plan_details.php
References
http://www.irs.gov/uac/529-Plans:-Questions-and-Answers
http://www.irs.gov/uac/How-529-Plans-Help-Families-Save-
for-College-and-How-the-American-Recovery-andReinvestment-Act-of-2009-Expanded-529-Plan-Features
http://money.usnews.com/money/personal-finance/mutualfunds/articles/2014/09/03/the-ultimate-guide-tounderstanding-529-college-savings-plans
http://www.forbes.com/sites/learnvest/2013/07/18/529savings-plans-9-mistakes-people-often-make/2/
http://www.kiplinger.com/article/college/T002-C000-S003the-best-529-college-savings-plans-2014.html