Utah’s Nationally Renowned College Savings Program
– By Howard Sierer –
Utah has been ranked first in the nation again and again in a variety of categories in recent years. Our nationally renowned “my529” college savings program adds to that list of superlatives.
Per the federal Securities and Exchange Commission, “A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as ‘qualified tuition plans,’ are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.”
529 plans allow parents, grandparents (or anyone else for that matter) to put money aside for a child’s educational use after high school graduation. Often called college savings plans, their proceeds can be used for vocational training as well as equipment required for that training.
Financial columnist Greg Spears explains: “Like an IRA, a 529 plan gives you a tax break for saving for a specific goal—but, in this case, college rather than retirement. Money in a 529 grows tax-deferred and, if used to pay for qualifying education expenses, can be withdrawn tax-free.”
Unlike IRA or 401(k) plans, contributions to a 529 account are not tax deductible on federal income tax returns. However, Utah citizens and those in a few other states can get a state income tax credit for a portion of their contributions, another plus for our state.
Spears calls 529 plans “a rare tax triple play: tax-deductible contributions at the state level, tax-deferred growth, and tax-free withdrawals.”
Utah’s plan is open to citizens of all states, and Spears, who lives in Pennsylvania, explains why he chose Utah’s plan. “We used Utah’s 529 plan because it had rock-bottom fees, offered low-cost index funds, and didn’t charge a sales commission.” That’s a powerful endorsement from a financial columnist who has studied 529 plans around the country.
Spears isn’t alone in singing the Utah plan’s praises. Morningstar, the highly respected financial rating firm, says, “Utah’s my529 plan is the only 529 plan that’s consistently received a ‘Gold’ rating since we debuted our ratings in 2012, but the investment team hasn’t rested on its laurels. Instead, it continues to focus on improving the plan for the betterment of investors.”
If your child does get a full ride to college, you can transfer money in a 529 account to another family member. You could even spend the money by going back to school yourself. New rules also make money in a 529 available to pay for K-12 education or to repay up to $10,000 in student loan debt.
With Pres. Biden’s student loan debt forgiveness (a.k.a. vote buying) plan is being declared unlawful by courts here and here, the ability to repay college student loan debt is another 529 plus as well as a boon for parents who send their children to private K-12 schools.
Sadly, according to a 2021 Sallie Mae survey, only 37% of families use 529s to help pay for college. Paraphrasing an old television commercial, college or vocational education costs are a case of “pay me now (with tax-free investment gains and withdrawals) or pay me later.”
Spears concludes his column with some advice: “Of course, you may not need to save in a 529 if your child can run a four-minute mile or is a lock to be admitted to a national military academy. As for the rest of us, I suggest starting to save as early as possible. After all, as almost everybody will tell you, kids grow up fast.”
Utah’s best-in-class “my529” plan is yet another reason to appreciate living in our well-governed state.
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