The state of Michigan sponsors three different 529 college savings plans: a direct-sold option (called the Michigan Education Savings Program), an advisor-sold option (called MI 529 Advisor Plan) and a prepaid tuition option (called the Michigan Education Trust Prepaid Tuition Plan.) All are available to any U.S. citizen or taxpayer, though for the prepaid tuition option, the beneficiary (or child) must be a Michigan resident at the time of enrollment. So grandparents and family friends can live anywhere and open a Michigan 529 plan account. That said, you can only benefit from the Michigan state tax deduction if you are a Michigan state taxpayer.
To open an account, you need only a $25 deposit or $15 per pay period direct deposit. While overall plan fees are pretty par for the course compared to those of other states, Michigan excels at the breadth of options it offers investors and the higher-than-normal maximum contributions. You can invest in more than one plan if you want to lock in today's tuition costs (with the prepaid program) and also reap market-based returns (with the direct-sold or advisor-sold investment plans). If you're not sure what to do, a financial advisor can help you decide based on your financial situation and expectations for your child.
|Plan Name||Program Type||How to Enroll||Fees|
|MESP Read Review||College Savings Plan||Direct-Sold||0.12% - 0.24%|
|MI 529 Advisor Plan Read Review||College Savings Plan||Advisor-Sold||0.67% to 1.52%|
|Michigan Education Trust (MET) Prepaid Tuition Plan Read Review||Prepaid Tuition Plan||Direct-Sold||Varies|
Michigan Education Savings Program (MESP)
The Michigan Education Savings Program (MESP) offers a diverse menu of investment portfolios designed for everyone from inexperienced savers to expert investors who want to navigate the process themselves. You can open an account with as little as $25 and contribute until your balance reaches $500,000. The program is open to all U.S. citizens or taxpayers, but only Michigan residents can claim state tax deductions ($10,000 for married joint filers or $5,000 for single filers).
How Do I Enroll in this Michigan 529 Plan?
Going online is the easiest way to open an account with MESP. According the the plan’s official website, you can open an account in fewer than 15 minutes. You can also visit the website to download and print an enrollment kit and an account application to mail in. Either way, you’d need the following for yourself and your beneficiary: Social Security or tax identification numbers, contact information and dates of birth.
How Much Does the Michigan Education Savings Program Cost?
When you open a MESP account, you'll face a program management fee, a state administration fee and underlying fund expenses. These are all factored into one total annual asset-based fee that you pay indirectly with money taken out of your account balance.
Estimated annual asset-based fees currently range from about 0.12% to 0.24%, which makes Michigan’s direct plan stand out as one of the lowest-fee plans we’ve examined.
Tax Benefits of the MESP
Michigan residents who invest in the MESP can deduct up to $5,000 ($10,000 for married couples filing jointly) from their Michgan state taxable income. But regardless of your place of residence, your contributions grow tax-deferred, meaning the earnings aren’t taxed (by the IRS or your state) while they’re invested. Withdrawals are also tax-free as long as you use them for 529 plan qualified expenses such as tuition and school supplies required for enrollment.
Recently, the SECURE Act expanded qualified expenses to include the costs of apprenticeship programs. Also, it allows you to use up to $10,000 to pay off student loans. It should be pointed out, though, that this $10,000 student loan tax break is a lifetime amount.
As of the signing of the Trump Tax Plan of 2017, you can also use up to $10,000 of 529 money to cover tuition at K-12 private schools. This provision is at the federal level only - your state may still consider K-12 tuition a nonqualified expense.
Of course, if you withdraw money to cover something other than a qualified higher education expense, you will face tax and penalty consequences. When you make a nonqualified withdrawal, the earnings portion will be subject to federal and state income tax as well as a 10% penalty. You may also need to pay back previously claimed state tax deductions. A certified public accountant (CPA) or certified financial planner (CFP) can help you determine how a nonqualified withdrawal may affect your particular tax situation.
What Are My Investment Options?
The MESP offers a variety of portfolios designed for different kinds of investors. If you’re new to investing and want to leave it to the professionals, one of the plan’s age-based portfolios is probably right for you. Simply choose the one that's for your beneficiary’s age and your risk level, and professional investment managers handle the rest. These portfolios automatically rebalance their asset allocation or mix of mutual funds, which are managed by Vanguard or TIAA-CREF. When your child is in grade school, these portfolios aim for growth by investing mostly in equity funds. As your child gets closer to college age, the asset mix gradually shifts to safer investments like fixed income funds.
How gradual the shift is depends on your risk level. The age-based portfolios come in three “tracks”: conservative, moderate or aggressive. When your beneficiary is 17 years old, for example, the aggressive track portfolio will invest 31.50% in equity. Its conservative counterpart would invest only 4.50% in equity by that time.
But if you want a little more control in calculating your asset allocation, you can invest in a single-fund or multi-fund portfolio. Single-fund portfolios invest in one asset class like U.S. equity. Federal law permits you to change investment portfolios twice per year.
Multi-fund portfolios invest in various asset classes such as equity, fixed income and real estate. Most multi-fund options also offer a choice of index or actively managed investment strategies. Index funds track a particular benchmark. Active funds try to “beat the market” by utilizing the investment management team’s own research and knowledge.
If you are getting a late start, and your child is, say, in high school, you'll probably be interested in the Guaranteed Investment option. As of January 2020, it pays an effective annual interest rate of 2.10%.
How Do I Withdraw Money from the Michigan Education Savings Program 529 Plan?
You can request a withdrawal by logging on to your account. It can be sent directly to your bank account via the ACH as long as your banking information has been on file with MESP for at least 30 days. You can also download a withdrawal form on the MESP’s official website and mail it in. Keep in mind, however, that ACH funds take a few days to reach your bank account.
MI 529 Advisor Plan
If you want professional help navigating your 529 investments, you may want to steer away from the direct-sold option and toward an advisor-sold 529 plan. The state of Michigan sponsors this plan. And although the MI 529 Advisor Plan is available exclusively through financial advisors, it bears some similarities to its direct-sold counterpart. It differs mostly in its investment options and fee structures.
Through the MI 529 Advisor Plan, you can invest in a variety of portfolios. Your choices include target-risk options, which offer exposure to several asset classes based on a risk level. An advisor can also tailor your portfolio with individual and multi-fund options based on your unique risk tolerance and financial goals. Like its direct-sold counterpart, the MI 529 Advisor Plan offers tax-deductible contributions for Michigan residents.
How Do I Enroll in the MI 529 Advisor Plan?
You can enroll in this plan by reaching out to a Michigan financial advisor.
How Much Does the MI 529 Advisor Plan Cost?
Fees related to the MI 529 Advisor Plan vary, depending on the portfolio you choose as well as its share class.
With the exception of the guaranteed option, each portfolio in the plan charges a total annual asset-based fee, which you pay indirectly with money taken out of your account balance.
This total includes a program management fee, service fee, distribution fee and state administration fee, as well as fees for underlying fund expenses. The total annual asset-based fee for portfolios ranges from about 0.67% to 1.52%
In addition, you may face sales charges depending on portfolio choice and share class. These expenses are common among advisor-sold plans. The maximum sales charge is 4.25% for Class A units. The sales charge is 0.65% for Class C units.
Generally speaking, you pay sales charges for Class A units upfront at time of purchase. They’re deducted from the amount of the contribution before it goes into the investment. According to the plan’s official website, Class C units that are redeemed to satisfy a withdrawal or rollover within eight months of purchase are subject to the sales charge. This sales charge is deducted from the redemption proceeds. In other words, the fee is taken from the money coming out of the plan within a given time frame.
The MESP may convert Class C units to Class A units after October 31, 2023. Ask your advisor for more information.
Sales charges can vary and may be reduced or waived depending on certain circumstances such as contribution amounts. It’s a good idea to speak to your financial advisor about specific fees and sales charges that apply to your portfolio and individual circumstances.
What Are the Michigan Tax Benefits for Investing in a 529 Advisor Plan?
As a plan established under Section 529 of the Internal Revenue Code, the advisor-sold plan enjoys the same tax benefits as its direct-sold counterpart. Michigan taxpayers can deduct up to $5,000 in annual contributions toward the MI 529 Advisor Plan from their state taxable income. That amount increases to $10,000 for married couples filing jointly. However, rollovers into the MI 529 Advisor Plan from other 529 plans do not count as tax-deductible contributions.
What Are My Investment Options?
With the help of an advisor, you can build a savings roadmap that reflects your risk tolerance and your beneficiary’s age. Your options include individual and multi-fund options as well as target-risk and age-based portfolios.
Target-risk options are designed for investors who want broad exposure to different asset classes but prefer a portfolio based on a consistent risk level. Or you can choose an age-based portfolio that automatically switches its asset allocation to take on less risk as your beneficiary approaches college.
If your child is getting close to college age, you may prefer the guaranteed option. Like a savings account, it pays an interest rate that is subject to change. As of January 2020, the effective interest rate is 2.10%.
How Do I Withdraw Money from the MI 529 Advisor Plan?
You can request a withdrawal by logging into your account or reaching out to your financial advisor.
Michigan Education Trust (MET) Prepaid Tuition Plan
If the direct-sold and the advisor-sold 529 plans don’t meet your specific needs, there’s a third option: the Michigan Education Trust (MET) Prepaid Tuition Plan. This type of plan allows you to purchase college credits at today’s rates in order to avoid projected increases in overall college costs. The benefits are then paid out when your beneficiary attends college. The state of Michigan sponsors this plan, and you can use full benefits at any public in-state university or community college.
Your choice of plan exists in a contract that the Michigan Education Trust protects.
How Do I Enroll in the MET Plan?
You can enroll online through the MET’s official website during open enrollment periods. You need Social Security numbers, birthdates and contact information for all parties to the contract. You also need to provide the current school year for your beneficiary.
You can also download a contract on the website to fill out and mail in. You will need to choose your plan type: Full Benefits, Limited Benefits or Community College.
Be sure to check the MET website for the latest information about enrollment periods.
How Much Does the MET Plan Cost?
Through the MET, you can purchase anywhere from a few credit hours to multiple semesters at any Michigan public university, including 28 community colleges. Prices vary per enrollment period and are based on several factors such as current average tuition prices for Michigan public colleges.
You can pay for your contract in one lump sum or through monthly payments. You also have a pay-as-you-go option, which allows you to pay in credit-hour increments instead of semesters. This option is best for someone who isn’t planning to buy multiple semesters or school years at once.
The price of a credit hour reflects the cost at the time of purchase based on your plan type: Full Benefits, Limited Benefits or Community College. Credit hour prices for each plan are set every enrollment period. They take effect on the first day of the enrollment period but are subject to change in the middle of the year if the MET Board of Directors finds it necessary. You can then continue contributing toward the plan.
With the lump sum option, you can purchase multiple semesters or years. However, the plan’s official website recommends you use the pay-as-you-go option if you’re not buying a full four-year contract.
Note that the plan charges a $25 online processing fee at the time of enrollment even if you choose to pay the lump sum with a check or money order.
You can also make monthly payments in four-, seven-, 10- or 15-year increments. Your choice will depend on the age of the beneficiary as any plan contract must be paid in full by the time your beneficiary reaches age 18.
Tax Benefits for Investing in Michigan’s Prepaid College Tuition Plan
Like direct-sold and advisor-sold plans, the MET is a qualified education program under Section 529 of the Internal Revenue Code.
Michigan taxpayers may deduct the amount they paid for a contract from their state taxable income up to $5,000 for single filers and $10,000 for married couple filing jointly.
The prepaid tuition plan also enjoys the same gift-tax exclusion as all other qualified 529 plans. This is is especially important if you’re purchasing a lump-sum plan, because the price may exceed even the 529 plan annual gift-tax exclusion. It’s important to seek a qualified tax advisor in this scenario, as tuition prices can change drastically.
Benefits or refunds from a terminated contract, however, may be subject to state and federal income tax as well as a 10% penalty if you don’t use them on qualified higher educational expenses.
What Are My Investment Options?
The state’s money managers pool account holders’ contributions and invest the money in equities (up to 70%) and bonds. The MET then uses funds and investment earnings to pay tuition and mandatory fees as agreed under specific contracts.
Money managers are from the Michigan Department of Treasury’s Bureau of Investments, which also runs the country's 13th largest public pension system.
The MET offers a variety of plan options. The Full Benefits Plan covers in-state tuition and mandatory fees at any Michigan public university. It also covers in-district or out-of-district tuition and mandatory fees at Michigan public community colleges. You can buy credit hours in increments of up to 150 or semesters in increments up to 10 (five years).
The Limited Benefits Plan covers in-state tuition and mandatory fees at Michigan public universities, as well as in-district or out-of-district tuition and mandatory fees at Michigan public community colleges. However, this plan can apply only to institutions whose tuition doesn’t exceed 105% of the weighted average tuition of all Michigan public four-year universities. This plan won’t cover tuition beyond those parameters.
Through the Limited Benefits Plan, you can purchase up to 150 credit hours or up to 10 semesters.
Finally, the community college plan provides in-district tuition and mandatory fees at Michigan public community colleges. You can buy up to 60 credit hours or up to four semesters (two years).
How Do I Withdraw Money from Michigan’s Prepaid College Tuition Plan?
You can request a withdrawal by logging on to your account on the MET site. You can also download a Withdrawal Form on the MET site and mail it in. These types of plans work best for beneficiaries who are in-state residents planning on attending a Michigan public university or community college. You can use some benefits at private or out-of-state colleges, but they may not go as far.
If you're not sure which plan is right for you, a professional can help. To find one, use SmartAsset's matching tool. It'll recommend up to three financial advisors in your area and vetted by us.
Check Out Other 529 Plans
You do not have to live in Michigan to invest in its 529 plan. Take a look at these other states' 529 plans.
|New York 529 Plans||Pennsylvania 529 Plans||Iowa 529 Plans||North Carolina 529 Plans|
|Illinois 529 Plans||South Carolina 529 Plans||New Jersey 529 Plans||Washington 529 Plans|