Educational Funding Georgia’s Path2College 529
A client recently asked me to investigate the best vehicle to use for she and her family to use to contribute and save for the college education of her grandson. Since AFA is a fee-only financial planner, I looked at the vehicles that are offered through a variety of sources, discount brokers, mutual funds, as well as those that are marketed directly from individual states. I quickly found that the best plans are provided and marketed directly from state governments. Specially, the plans from Nevada, Ohio, Virginia and Georgia caught my interest. These plans are all very low cost, have a great diversity of investment choices and some offer state tax deductions for contributions made by residents of their state. These plans are not available to be sold by brokerage firms, so if you ask your local “Big Company Brokerage” stockbroker for a recommendation, typically, they will sell you their brokerage sponsored 529 and not even mention the state direct marketed plans.
529 plans allows parents, grandparent, or other family members to open and own an account for a beneficiary, normally a child or grandchild. An individual may make five years of annual gift tax exclusion gifts up front ( $13,000 X 5=) $65,000 to a 529 account; for joint filers this amount is ($26,000 X 5=) $130,000. This will reduce the individuals total estate for estate tax purposes. The earnings of a 529 account are never taxed as long as the money is used to pay for qualified expenses for post secondary school (higher) education. Funds can be used for tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room and board costs, certain expenses for “special needs” students. Whether a beneficiary decides to go to a private or public college or university, in-state or out-of-state, trade or graduate school, funds in the account may be used at any eligible higher educational institution in the nation and many abroad. The beneficiary can be changed at any time to a relative, even a first cousin, of the original beneficiary. The account owner always owns and has control over the funds in the account. A contingent owner may be named so in the event of death or incapacity of the original owner, the account does not have to pass through the probate court process. This is a wonderful, low cost way of saving money for a loved ones higher education.
The Georgia plan is managed and operated by TIAA-CREF My recommendation for Georgia residents is to enroll in the state sponsored and marketed Georgia Path2College 529 for several reasons listed below:
- Georgia provides up to a $2,000 state tax deduction for contributions to the plan for each taxpayer who contributes. This could save a taxpayer $120 annually in Georgia state tax.
- The investment choices offered by TIAA-CREF are broad, robust, low maintenance and low cost. The age based options are allow you to choose an age band for the age of your child and TIAA-CREF will change the portfolio allocation, from more aggressive to more conservative, automatically as the child gets older and moves toward college age, normally 18.
- The plan and investment choices are very cost effective and range between 0.29%-0.40% annually for assets under management. This compares favorable to broker provided plans that average over 1%.
- There is no annual maintenance fee for maintaining the account. Brokerage firms typically charge $50 to $100 annually to maintain an account.
- Low contribution minimum. You can open an account for as little as $25.00 and subsequent contributions of $25 or more can be made at any time.
- path2college529.com/
If you live in Georgia, certainly give the Georgia plan a hard look. You can go to the Georgia Path2College website, read the disclosure booklet to learn more about the plan. If you choose, you can very easily open an account on-line. The customer service phone line is fantastically responsive and the customer service reps are very knowledgeable. I believe this is a very good choice for an individual who is a Georgia resident wants to open a 529 for a loved one. If you have any questions about a 529 or any other financial question you can contact me to discuss.