Indiana sponsors an advisor-sold 529 college savings plan and a direct-sold one, which offers a certificate of deposit (CD) account powered with the tax benefits of a 529 plan. The Hoosier State definitely stands out for its variety of investment options and flexibility. The CollegeChoice 529 direct-sold plan offers several investment portfolios with some of the lowest fees we’ve seen. The advisor-sold option charges higher fees overall, but it offers a different investment menu and the guidance of a qualified financial advisor. You can also move your funds to an FDIC-insured 529 CD with a fixed-interest rate.
|Plan Name||Program Type||How to Enroll||Fees|
|CollegeChoice 529 Direct Savings Plan Read Review||College Savings Plan||Direct-Sold||0.18% - 0.58%|
|CollegeChoice Advisor 529 Savings Plan Read Review||College Savings Plan||Advisor-Sold||0.73% - 2.27%|
CollegeChoice 529 Direct Savings Plan
Indiana’s CollegeChoice 529 Direct Savings Plan allows you to invest in your child’s future with as little as a $10 deposit, and you can then contribute up to $450,000—one of the highest contribution maximums we’ve examined across the country. The plan also offers investment portfolios with relatively low fees. Your options include year-of-enrollment portfolios that automatically change their asset allocation to take on less risk as your child gets closer to college age. You can even invest in an FDIC-insured savings account. In addition, Indiana taxpayers are eligible for tax credits worth 20% of their contributions up to $1,000.
How Do I Enroll in the CollegeChoice 529 Direct Savings Plan?
You can open an account with the CollegeChoice 529 Direct Savings Plan sponsored by the state of Indiana online. The process should take a few minutes if you’ve gathered the following information about yourself and your beneficiary:
- Social Security or tax identification numbers
- Your bank account and routing numbers if making initial $10 minimum contribution electronically.
You can also fill out a paper application and mail it in. In addition, you’d need to select an investment option at time of enrollment.
How Much Does the Indiana 529 Plan Cost?
Each portfolio in the CollegeChoice 529 Plan charges a total annual-asset based fee, which combines the plan management fee with the estimated expenses of the mutual funds in each portfolio. This fee total currently ranges from 0.18% to 0.58%, making Indiana’s 529 plan one of the most fee-friendly in the country.
So if you invest $10,000 in a portfolio with a total annual asset-based fee of 0.27%, your fees would amount to just $35 after one year. This estimation assumes the following.
- A 5% annually compounded rate of return
- The total funds are withdrawn at the end of the period for qualified expenses.
- The total annual asset based fee remains unchanged.
- Account maintenance fee is waived.
The $20 annual account maintenance fee can be waived if either you or your beneficiary are Indiana residents.
Tax Benefits of the CollegeChoice 529 Direct Savings Plan
The CollegeChoice 529 Direct Savings Plan is open to all U.S. citizens, but Indiana tax payers get bonus perks. They are eligible for tax credits worth 20% of their annual contributions up to $1,000 per account.
For all account holders, contributions can grow tax-exempt. This means your earnings will be shielded from Uncle Sam, and you can take full advantage of compound interest. Your withdrawals will also be tax-free if you use the money to fund qualified higher education expenses such as tuition and mandatory fees.
However, you may face some consequences if you use your 529 plan money on anything else. In this scenario, you’ve made a nonqualified withdrawal and it may be subject to federal income tax as well as a 10% penalty. You may also have to pay back previously-claimed tax deductions. You should speak to a qualified tax advisor in your area about how a nonqualified withdrawal may affect you based on our unique circumstances.
What Are My Investment Options?
The CollegeChoice 529 Direct Savings plan offers a diverse menu of low-fee investment portfolios featuring year-of-enrollment options. These may suit you if you’re new to investing. You can choose one named after the year you expect your child to enroll in college. These portfolios then automatically change their asset allocation. When your child is young, these portfolios aim for strong growth by investing mostly in stock funds. But as your child approaches the college years, the portfolio switches focus to less-risky investments like bond funds with an aim to earn a steady return and protect your savings.
You can also invest in one or more Individual portfolios to create a customized investment strategy based on your risk appetite. Each one of these portfolios invests in a single underlying mutual fund and they invest in all major asset classes like stocks and bonds. You can use our asset allocation calculator to see how investment mixes may break down based on different risk levels. A financial advisor can also help you construct a personalized investment strategy with the portfolio options available through the Indiana 529 plan.
But if your risk tolerance is very low or you’ve been saving for a while and believe it's time to protect your earnings, you may be interested in the plan’s Savings portfolio. This FDIC-insured option invests your contributions entirely in a NexBank high-yield savings account.
But regardless of which option you choose, federal law allows you to change investment options twice per year. This may be a good idea as your financial situation and savings goals change.
In addition, the CollegeChoice 529 program sponsored by Indiana also allows you to invest in a fixed-rate certificate of deposit (CD) account that provides the same tax benefits as the direct or advisor-sold plans.
CDs are short-term savings vehicles that credit you a set interest rate, but you’re not allowed to take your money out of the CD until your term is complete without facing a penalty. So this option may suit someone who wants to protect his or her savings and get a fixed-rate of return before using the funds within a short period of time.
CollegeChoice 529 offers 1-year, 3-year and 5-year CDs with fixed-interest rates. You’d need a minimum deposit of $250. Below are the current interest rates.
- 1-Year CD: 1.92%
- 2-Year CD: 2.00%
- 3-Year CD: 2.15%
You can also move your savings into a CollegeChoice 529 high-yield savings account by the College Savings Bank, a division of NexBank SSB. This FDIC-insured account offers a current interest rate of 1.55% coupled with the tax benefits of a 529 college savings plan.
How Do I Withdraw Money from the Indiana 529 Plan?
You can request a withdrawal by logging on to your account or by filling out a distribution form and mailing it in. The payment can be made to you, your beneficiary or an eligible educational institution. An eligible school is virtually any accredited institution that accepts financial aid from the U.S. Department of Education. This means you can use your 529 plan savings to cover qualified educational expenses at a variety of schools including vocational and four-year universities in the U.S., as well as some foreign institutions.
College Choice Advisor 529 Savings Plan
If you prefer the guidance of a financial professional when saving for your child’s future college education, Indiana’s CollegeChoice Advisor 529 Savings Plan may be the right option for you. This plan offers the same tax benefits as its direct counterpart, but it offers a vastly different investment menu featuring portfolios that invest in exchange-traded funds (ETFs), which generally charge lower fees than mutual funds. A financial advisor can help you invest in one or more of the plan’s options to create a customized savings strategy based on your risk tolerance and financial goals.
How Do I Enroll in the CollegeChoice Advisor 529 Savings Plan?
You can open an account with the CollegeChoice Advisor 529 Savings Plan through a financial advisor, who would guide you through the enrollment and investment selection process. When choosing an advisor to work with, however, make sure you examine his or her qualifications and credentials. Some advisors such as Registered Investment Advisors (RIAs) are held to stricter standards than advisors not registered with the Securities Exchange Commission (SEC). In addition, compensation structures can vary widely across advisors and this can have a profound effect on your long-term savings. For example, certified financial planners (CFPs) typically work on a fee-only basis, while other advisors work off commissions from the investments they recommend.
So be sure to ask your advisor questions about his or her certifications, fee structures and areas of expertise.
How Much Does The CollegeChoice Advisor 529 Savings Plan Cost?
The fees associated with the CollegeChoice Advisor 529 Savings Plan vary depending on your portfolio option, share class choice and other circumstances. But because this is an advisor-sold 529 plan, you may encounter additional fees you won’t usually find in a direct plan. These are typically charged to compensate advisors and others associated with the management and marketing of the plan.
An example is a sales charge, which can vary based on your share class choice. Portfolios with Share Class A, for example, have initial sales charges which are taken from each contribution. Portfolios with Class C Units charge a contingent deferred sales charge (CDSC), which usually sets in when you withdrawal units within a certain time after making a contribution. Sales charges can be waived in some cases such as increasing account balances.
And like the investment options in the direct plan, each portfolio also charges an annual asset-based fee. You should have a thorough discussion with your advisor about which portfolio option and corresponding share class is best for you as well as all fees involved.
Below are more details about how fees break down by share class.
Class A Units
- Maximum initial sales charge: 5.25%
- Total annual asset-based fee for portfolios: 0.73% - 1.52%
Class C Units
- Maximum contingent deferred sales charge (CDSC): 1.00%
- Total annual asset-based fee for portfolios: 1.46% - 2.27%
Tax Benefits of the CollegeChoice Advisor 529 Savings Plan
As with the direct-sold plan, this advisor-sold 529 plan option sponsored by Indiana offers several tax benefits. Your contributions can grow tax-deferred and your withdrawals will be tax-free if you use the money to fund qualified higher education expenses.
However, you’d still face some consequences for making non qualified withdrawals from the advisor-sold plan. Speak to your financial advisor about any tax implications associated with these types of distributions. You should also discuss additional tax benefits offered by all 529 college savings plans. For example, 529 plans offer distinct gift tax and estate-tax benefits.
What Are My Investment Options?
Indiana’s advisor-sold 529 plan allows you to invest in the same types of portfolios as the direct plan. However, the underlying investments in this plan’s portfolios are different. For example, individual and age-based portfolios in the advisor plan allow you to invest in iShares ETFs that BlackRock, T. Rowe Price and PIMCO manage.
However, the advisor plan offers the same Savings Portfolio managed by NexBank. Your advisor can help you invest in one or more of these options to create a long-term savings strategy based on your personal goals and evolving financial situation.
How Do I Withdraw Money from the CollegeChoice Advisor 529 Savings Plan?
You can request a withdrawal by logging onto your account online or by filling out a distribution form. However, you should refer to your financial advisor before making any withdrawal in order to analyze how you can best use your funds.
If you’re not sure how to go about seeking an advisor, you can use our SmartAdvisor matching tool. By answering a few simple questions, the tool will link you to qualified advisors in your area based on your preferences.