The state of Alabama sponsors a direct-sold and advisor-sold 529 college savings plan. Both offer distinct tax advantages such as the potential for tax-deferred growth and tax-free withdrawals for qualified educational expenses. Alabama residents get to deduct a sizable amount of their contributions from their state taxable income each year. You can find a financial advisor in your area to open the direct-sold option and build a savings plan unique to your goals. Overall, Alabama has reasonable fees and high maximum contribution amount at $400,000, but it does not have any guaranteed portfolio option and doesn’t have that many investment choices available within its two plans.
|Plan Name||Program Type||How to Enroll||Fees|
|CollegeCounts 529 Fund Read Review||College Savings Plan||Direct-Sold||0.30% to 0.89%|
|CollegeCounts Advisor-Guided 529 Fund Read Review||College Savings Plan||Advisor-Sold||0.66% - 1.52%|
CollegeCounts 529 Fund
The CollegeCounts 529 Fund that the state of Alabama sponsors allows you to invest in your child’s future education as soon as possible. Morningstar, a recognized investment research firm, recently rewarded it with a silver-star rating for its low fees and other benefits. It offers several tax advantages, and Alabama residents can deduct contributions from their state taxable income each year. The plan allows you to invest in several portfolios including age-based options that automatically change their asset allocation to become less risky as your child gets closer to college.
How Do I Enroll in Alabama’s 529 Plan?
The easiest way to sign up for the CollegeCounts 529 plan is online. Or you can download an enrollment kit and mail in the required forms. You can also sign up by calling 866-529-2228. For yourself and your beneficiary, you’d need to provide your names, birthdates and Social Security numbers, along with your checking or savings account number and your bank routing number.
How Much Does the Alabama 529 Plan Cost?
The CollegeCounts plan charges a total annual-asset based fee that varies depending on which investment portfolio you invest in. The fee is not taken out of pocket but is instead factored out of your account balance. The total annual asset-based fee currently ranges from 0.30% to 0.89%.
Tax Benefits of Alabama’s 529 Plan
Single filers can deduct $5,000 from their Alabama taxable income each year, and married couples filing jointly can deduct up to $10,000. However, the plan is not open only to Alabama residents. Any U.S. citizen can open an account and enjoy distinct tax benefits exclusive to these saving options. For starters, the money you contributor toward the plan will grow tax-deferred while it is invested. Thus, Uncle Sam won’t touch your money or what it earns in the market. In addition, your withdrawals will be tax free as long as you use them for qualified higher education expenses such as tuition and mandatory fees.
However, you may face some tax consequences if you use your savings on something else. Once you take money out of the plan for something other than a qualified higher education expense, you’ve made a nonqualified withdrawal. You may face federal income tax as well as a 10% penalty. You may also need to pay back previously claimed deductions.
You should find a financial advisor or qualified tax professional to discuss how a nonqualified withdrawal may affect you based on your unique tax situation.
What Are My Investment Options?
Alabama’s 529 plan offers a variety of low-fee portfolios you can invest in. If you’re new to investing, you may be interested in an age-based portfolio. These options automatically switch their asset-allocations over time. When your child is young, these portfolios are invested mostly in stock funds in order to aim for strong growth while taking on risk. As your child gets closer to college, the portfolio begins to invest more heavily in safer investments like bond funds with the aim to protect what you’ve earned over the years.
But if you have a general sense of how you want to set up your asset allocation, you may want to invest in a target portfolio. These options invest in a variety of investments based on a particular risk level and objective. The plan also offers individual portfolios, which invest entirely in one underlying fund.
How Do I Withdraw Money from Alabama’s 529 Plan?
The simplest way to request a withdrawal is online by logging into your account. You can also download a withdrawal form and mail it in. If you have any questions, you can call customer service at 866-529-2228 from 7:30 a.m. to 6:00 p.m. Eastern Standard Time.
How Can I Save More With The Alabama CollegeCounts 529 Fund
Alabama's CollegeCounts plan also offers a Visa Rewards credit card that you can use to get cash-back on your purchases. The card provides you with 1.529% cash-back on purchases. When you earn more than $50 in rewards, you can transfer the savings onto your 529 plan account. In addition, you can get friends and family to sign up for the card in order to maximize rewards for your child.
CollegeCounts Advisor-Guided 529 Fund
The CollegeCounts Advisor-Guided 529 Plan that the state of Alabama sponsors offers the same tax-benefits as its direct-sold option as well as the types of portfolios you can invest in. With this option, however, you’ll approach college savings with the guidance of a financial professional. This plan may be right for you if you want the peace of mind of working with a qualified advisor who can help establish an investment roadmap tailored to your individual financial goals. But because you’d be getting these services, the price of investing in this guidance, your fees will be higher than with the direct-sold plan.
How Do I Enroll in Alabama’s Advisor-Guided 529 Plan?
To enroll in Alabama CollegeCounts Advisor-Guided 529 Fund, find a financial advisor who will complete the enrollment form with you. The advisor should walk you through the investment selection process and help you make the most out the plan’s benefits to help meet your unique goals.
How Much Does the CollegeCounts Advisor-Guided 529 Plan Cost?
Alabama’s CollegeCounts Advisor-Guided Plan is known as an advisor-sold 529 plan. This means it’s available exclusively through financial advisors and its fee structures may be different than those typical to a direct-sold plan.
Because you’d be working with a financial professional, you may encounter sales charges paid to plan distributors, commissions for financial advice, and certain asset-based fees charged for the services of registered-investment advisors (RIAs) and other advisors who may not work on commissions.
Your ultimate fees will depend largely on which portfolio or portfolios you invest in as well as the fee structure or share class you choose.
Total annual asset-based fees factor in a program management fee and a state administrative fee. These fees can climb to about 1.52% of your assets for some portfolios.
Sales charges depend on the fee structure you choose. For example, the maximum sales charge for fee structure A is currently 3.50% for all plan portfolios. Portfolios with fee structure C carry no sales charges but a larger annual account servicing fee than fee structure A.
The best step to take is to have a thorough discussion with your financial advisor about the fees involved and which portfolio is best for you. In some cases, you can waive sales charges.
Tax Benefits of Alabama’s 529 Plans
The Alabama advisor-sold 529 plan offers the same tax benefits as its direct-sold counterpart. By investing in the plan, you can still enjoy tax-deferred growth and tax-free withdrawals for qualified higher education expenses.
You can also take advantage of gift-tax exclusions that are exclusive to 529 college savings plans. For any given tax year, you can contribute up to five times the applicable gift-tax exclusion toward a 529 college savings plan without triggering a gift tax as long as you don’t make any more contributions to the same plan for the next five years. Speak to your financial advisor about how to make the most out of this perk.
What Are My Investment Options?
The Alabama advisor-sold plan offers the same types of portfolios as its direct-sold counterpart. For example, you have the option to invest in age-based portfolios that automatically rebalance your asset-allocation to become overall less risky as your child gets older.
However, you can choose to put your age-based portfolios on three tracks based on risk level. So if you choose the aggressive track, your portfolio would still invest 28% of your money in stocks when your beneficiary reaches age 17. Stock funds are generally riskier but typically provide more growth than bond funds. By contrast, the age-based portfolio on the conservative track would invest only 8% of your money in equity when your child turns 17.
You can also choose from target portfolios which invest in stocks, bonds and other securities based on a specific risk level and investment goal. Your advisor can help you build an investment strategy from 26 different individual portfolios that each invest in one underlying fund.
Some of the nation’s most established financial services firms such as T.Rowe Price, Fidelity Investments and BlackRock manage the underlying funds in the plan’s portfolios.
How Do I Withdraw Money from Alabama’s Advisor 529 Plan?
Log into your account or contact your financial advisor to request a withdrawal. If you’re not sure how to go about seeking a qualified professional, you can use our SmartAdvisor tool to find a local financial advisor, who is legally binded to have your best interests in mind when providing advice. First you answer a series of questions about your financial situation and goals. Then the program narrows down thousands of advisors to three advisors who meet your needs. You can read their profiles to learn more about them, interview them on the phone or in person and choose which you'd like to work with in the future. This allows you to find a good fit while we do most of the hard work for you.