The state of Alabama sponsors direct-sold and advisor-sold 529 college savings plans. Both offer distinct tax advantages, such as the potential for tax-deferred growth and tax-free withdrawals for qualified educational expenses. Alabama couples can deduct up to $10,000 worth of their contributions from their state income tax.
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, 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||0.02% to 0.63%|
|CollegeCounts Advisor-Guided 529 Fund Read Review||College Savings Plan||Advisor-Sold||0.66% - 1.52%|
CollegeCounts 529 Fund
The CollegeCounts 529 Fund sponsored by Alabama allows you to start investing in your child’s education as early as possible. Morningstar, an investment research firm, recently rewarded it with a silver-star rating for its low fees and other benefits. It offers several tax advantages for any account holder. Alabama residents can deduct up to $10,000 in contributions from their state income tax each year. The plan, which is direct-sold, 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 to Enroll in Alabama’s CollegeCounts 529 Fund
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 Alabama's CollegeCounts 529 Fund 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 0.02% to 0.63%.
Tax Benefits of Alabama’s CollegeCounts 529 Fund
The plan is open to any U.S. citizen, but only Alabama residents can deduct 529 contributions from their state income tax: single filers can deduct up to $5,000 and married couples filing jointly can deduct up to $10,000. For starters, the money you contribute toward the plan will grow tax-deferred while it is invested. In addition, your withdrawals will be tax-free if you use them for qualified higher education expenses such as tuition and mandatory fees.
An account owner’s contributions to an account are eligible for the annual gift tax exclusion, currently $15,000 per donee. Also, 529 plans allow for a special gift tax exclusion election. With certain qualifications, this rule allows you to contribute up to $75,000 for each beneficiary in a single year without federal gift tax consequences.
The SECURE Act opened up a host of qualified education expenses, including the costs of apprenticeship programs. You can also withdraw up to $10,000 tax-free in your lifetime to pay student loan debt.
The Trump Tax Plan allows you to withdraw up to $10,000 from 529 plans tax-free to cover tuition at public, private and religious K-12 schools. This benefit applies to federal taxes. Check with a local accountant to see how this may impact your state tax return.
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 CollegeCounts 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. There are three of these (aggressive, moderate, conservative) and each one automatically switches its asset allocations over time. When your child is young, these portfolios are invested mostly in stock funds 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 of protecting 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. There are six of these, ranging from higher risk (100% stocks) to low risk (money market fund).
Thirdly, you can design your own portfolio from a broad array of stock and bond funds, a money market fund and a real estate fund. Pick one fund or several based on your risk level and objective.
Withdrawing Money From Alabama’s CollegeCounts 529 Fund
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.
Saving More With Alabama's 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 to maximize rewards for your child.
CollegeCounts Advisor-Guided 529 Fund
The CollegeCounts Advisor-Guided 529 Fund 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 to Enroll in Alabama’s CollegeCounts Advisor-Guided 529 Fund
To enroll in Alabama CollegeCounts Advisor-Guided 529 Fund, find a financial advisor with distributor Northern Trust Securities, 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.
The Cost of Alabama's CollegeCounts Advisor-Guided 529 Fund Cost
Alabama’s CollegeCounts Advisor-Guided Fund 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 fees not associated with a direct option. These may include sales charges that vary based on the share class you choose for each portfolio.
As with investment options in the direct plan's menu, there are asset-based fees for each portfolio in the advisor-guided plan. These fees can climb to about 1.84% 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 Funds
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 will still have 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.
How Do I Withdraw Money from Alabama’s 529 Fund?
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 bound 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 near you 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.
Check Out Other 529 Plans
You do not have to live in Alabama to invest in its 529 plan. Take a look at these other states' 529 plans.
|New York 529 Plans||Pennsylvania 529 Plans||Ohio 529 Plans||California 529 Plans|
|Florida 529 Plans||Oregon 529 Plans||Minnesota 529 Plans||Nebraska 529 Plans|