by Professional Financial Solutions | March 31, 2022 | Education Funding
For clients living in Virginia with school-age (or younger) kids or grandkids, we strongly recommend the Virginia Invest529 plan as a means of saving for college. The federal and state tax codes incentivize use of this option over other college savings vehicles, such as Coverdell accounts, UTMA accounts, Roth IRAs (in most cases), bank savings accounts, and other 529 plans. The Virginia Invest529 plan has the following benefits:
Deductions on your state income tax return (up to $4,000 of annual contributions per account, so if you and your spouse both open an account for your child, that’s potentially $8,000 in state tax deductions per child each year),
Flexibility to use your Invest529 funds at any college, technical school, or vocational school (in-state or out-of-state),
Well-diversified and low-cost investment choices (expense ratios of the Target Enrollment portfolios range from 0.09% to 0.37%, which includes the Virginia 529 administrative fee), and
Ease of savings with a low initial minimum contribution ($10) and automatic investment plans to facilitate monthly contributions from your bank account.
To open a Virginia Invest529 account, simply follow these 8 steps:
Select “New Invest529 Account” under the “Open an Account” heading,
Provide information on the Account Owner, Account Owner Relationship, Beneficiary, Designated Survivor, and Other Authorized Individual,
When selecting an investment option for the new account, use one of the Target Enrollment portfolios based on your child’s age (unless your child is already in high school, in which case you may want to use the Tuition Track portfolio),
On the Product Selection page, input your initial investment amount and recurring bank debit (for automatic monthly savings) into the boxes for the selected portfolio,
Submit and review your application information,
Read the Invest Account Agreement,
Give yourself a pat on the back for taking an important step toward providing for your child’s college education, and don’t forget at tax time to include your 529 contributions for the year on your state tax return to cash in on your VA state income tax deduction!
For those living outside Virginia, we recommend investigating your own state’s laws for 529 deductions or credits (or ask us for help!). Most states do offer some level of credit for contributions to the state’s 529 plan, and a few (e.g. Arizona and Kansas) offer deductions to any state’s 529 plan, allowing you to shop around for which plan is best for you. If you live in a state without a 529 state tax deduction or without income tax altogether, you could fund a Roth IRA annually for college savings or just invest in one of the best ranked 529 plans in terms of investment options and fees, such as the Utah 529 program (my529) or the Vanguard 529 program. (For more detail on using Roth IRAs for college savings, we have discussed this topic in a prior blog post.)
Most importantly, if providing for a child’s college expenses is one of your financial goals, and you have not yet started saving, start today! Set up a 529 plan, establish an automatic investment plan with a monthly contribution that is achievable for you, and with each passing month, the once-overwhelming goal of saving for college will grow more within reach.
