Open a NY 529 Plan for Your Own Education
The NY 529 plan, or New York’s 529 College Savings Program Direct Plan is an excellent choice for New York residents. If you are not a resident of New York State and pay taxes in another state, your best bet is to compare the NY 529 plan with the plan that your own state offers. Your state’s 529 plan may have tax advantages that you cannot access through this Program. For New York State taxpayers, deductions up to $5,000 of contributions are allowed on tax returns. For married couples who file jointly the deduction limit is $10,000. Withdrawals from the fund are exempt from New York State income tax if the money is used for qualified education expenses.
It’s easy to open a NY 529 plan. You can start with $25 and continue contributions by check, automatic investment, electronic bank transfer, or payroll deduction. You can also transfer assets from other college savings plans. The only fee is a small a management fee of 0.49 percent. The maximum balance per beneficiary is $375,000. The beneficiary can be your child, a relative, or even yourself if you have plans to return to school.
Regarding who can invest in a NY 529 plan, the doors are open to citizens and resident aliens. All you need is a valid social security number or taxpayer identification number and a permanent U.S. address. Eligible expenses include tuition, fees, books, certain room- and-board expenses, and supplies. The school needs to be a post-secondary school which can be in the United States or abroad. For 2010 eligible expenses cover computer technology and equipment, Internet access and related services.
There are 16 investment options by Vanguard and you can choose up to five investment options. The options are age-based, individual portfolio, or price and performance based. Vanguard has been in the investment business since 1975 and has a reputation for value, client focus, and low operating costs.
Recommended Readings:
Indiana 529 Plan Offers Choices
If you plan to invest in an Indiana 529 plan, there are two main choices you can make – the CollegeChoice 529 Direct Savings Plan or the CollegeChoice Advisor 529 Savings Plan. The first one is best if you plan to invest on your own. It is easy to enroll and easy to use. The second one is designed for use with the help of a financial advisor.
Since this is the one that you will be handling on your own, let’s look at the CollegeChoice 529 Direct Savings Plan. The main features that it offers are the tax benefits, the inexpensive minimum contribution, the flexible investment choices, and the ability to maintain full control over your assets.
The tax benefits include tax-deferred growth, federal tax-free qualified withdrawals, special tax credit for Indiana residents, gift-tax and estate planning benefits. If you take out money for non-qualified reasons, that money is subject to federal, state and local income taxes and possibly a 10 percent federal penalty tax, as well as. The tax credit for Indiana taxpayers is 20 percent of their contributions to their Indiana 529 plan, to maximum of $1,000 credit per year.
You can contribute as little as $25. Actually you can open an account for $25. The maximum contribution is a total of $298,770 per beneficiary. The annual asset-based fees are very low, ranging from 0.35 percent to 0.95 percent. If you are an Indiana resident, there is no annual account maintenance fee and if you or the beneficiary is an Indiana resident, there is no annual account maintenance fee. Non-residents can open an Indiana 529 plan but the annual account fee is $20 but this is waived if the account balance is at least $25,000. Annual contributions can be as $13,000 per beneficiary individually. If you and your spouse file taxes jointly this is doubled. The CollegeChoice Advisor is similar but the investments are managed by asset managers.
Recommended Readings:
The PA 529 Plan is Considered the Best
Each state has its own variations of the 529 plan. Pennsylvania’s College Savings Program is thought of as the best of all the 529 plans. So what is it that makes the PA 529 plan better than other state 529 plans? Here is a list of the benefits of the Pennsylvania 529 plan:
- Pennsylvania taxpayers can deduct 529 contributions for up to $13,000 per beneficiary annually. Married couples can deduct double that – up to $26,000 per beneficiary per year. Of course, this assumes that each spouse has a taxable income of at least $13,000.
- A person can contribute up to $65,000 in a single year – double that for jointly-filing married couples – per beneficiary. This contribution is viewed as gift spread over five years.
- 529 funds are exempt from Pennsylvania inheritance tax.
- The Pennsylvania 529 Guaranteed Savings Plan (GSP) allows you to save in a way that your investment is guaranteed to match the rate of college tuition inflation,
- You can have a flexible contribution plan so that you can invest a mere $25 at a time.
- Each beneficiary can accumulate up to $368,600 in his or her Pennsylvania College Savings Program accounts.
- There are no income restrictions. So regardless of how much or how little you make, you can open a PA 529 plan.
- There is no enrollment fee or annual maintenance fee.
- You do not have to live in Pennsylvania to contribute to a PA 529 plan.
- You can participate in the PA 529 plan without a broker and buy the plan yourself.
There are two types of 529 plans — The Pennsylvania 529 Guaranteed Savings Plan and the Pennsylvania 529 Investment Plan. The first one keeps up with tuition inflation and the second one offers 13 investment options.
Recommended Readings:
Do You Know the 529 Plan Rules?
Here are some interesting 529 Plan rules:
- With an Education Savings Account (ESA) there are income limits on investing. With the 529 Plan your income does not impact your 529 plan eligibility.
- Contributions to 529 plans qualify for the $11,000 ($22,000 for couples) annual gift tax exclusion.
- You can contribute up to five years of gifts in the 529’s first year.
- You can contribute as little as $25 a month to a 529 plan.
- In most 529 plans, there is no age limit or time limit for using the money.
- You can roll the account over to another child in the same family of the first beneficiary. Family here means the original beneficiary’s spouse, children, sisters, brothers, nephews, nieces, first cousins, and the spouses of these family members.
- The beneficiary can use the money for any accredited degree-granting educational institution – public, private, two-year, or four-year.
- If the beneficiary gets a scholarship, dies, or is disabled the 529 account can be rolled over to another family member or it can be cashed out. However if you cash it out, you have to pay taxes.
- You cannot use your 529 plan account as collateral for a loan.
- If you withdraw the money for reasons other than paying for qualified higher education, you pay tax plus a 10 percent penalty.
- 529 contributions have to be cash. You cannot roll stocks into it.
- 529 accounts are considered gifts. This means that they are not considered as part of your estate assets.
- Each beneficiary must have an individual account. Family members cannot share an account but if the beneficiary does not use his or her 529, then it can be rolled over to another family member.
- Each state has different rules about 529 tax breaks.
- Some states have higher 529 expenses such as enrollment fees, annual maintenance fees and program management fees.
Recommended Readings:
529 Vs Education IRA – Which is the One for You?
Children grow up so fast and before you know it, they are poised to get into college. Will you be ready? The National Center for Education Statistics notes that for the 2007–08 academic year – the most recent year for the available statistical information, the cost of undergraduate tuition, room, and board is about $11,578 (up 30 percent over a decade) at public institutions and $29,915 (up 23 percent over a decade) at private institutions. This is a lot of money.
The only question really is which plan to choose. Let’s compare the 529 vs Education IRA. These are the only two real choices when it comes to saving money for college because these are the plans that provide for big tax breaks.
529 education savings plans are tax free on all counts.
The contributions, account growth and withdrawals, so long as they are used for tuition fees, are tax free. The 529 plan is great way to save on taxes while creating a future for your child. As a side note, the name of the plan is derived from Section 529 of the Internal Revenue Code which is the section that was created in 1996 to implement this kind of education savings plan. There are two types of 529 Plan – a Savings Plan where your contributions are invested in mutual funds or something similar and a Prepaid Plan where you pre-pay all or part of the costs of an in-state public college education. These funds can be converted for use at private and out-of-state colleges. There is also an Independent 529 Plan which allows you to prepay for a private college.
The Education IRA is quite similar but there are two differences and these can be counted as advantages or disadvantages, depending on your point of view. One difference is that an Education IRA allows you to choose where to invest thus not limiting the investments to mutual-fund accounts. The other difference is that Education IRA savings can also be used for education at private and religious elementary and secondary schools. The 529 can only be used at an approved institution of higher education.