North Carolina may not sponsor as many 529 college savings plans as other states, but its one direct-sold option offers several benefits. And though the investment menu on the state’s plan may be a bit slim compared with others across the country, its fees are among the lowest we’ve seen. You can begin investing with as little as $25 in portfolios designed for all risk level, and North Carolina allows for a maximum contribution of $420,000, on the high end for 529 plans nationwide. North Carolina doesn’t offer an advisor-sold 529 plan, but if you’d like the assistance of a professional to assist you as you plan for your child’s future education, you can use SmartAsset’s SmartAdvisor matching tool to get paired with an expert to guide you.
How Do I Enroll in North Carolina's 529 Plan?
You can enroll in North Carolina’s 529 Plan online or by mail. You’d need the following information for yourself and your beneficiary.
- Social Security or tax identification numbers
How Much Does The College Foundation of North Carolina Plan Cost?
Each portfolio in the NC 529 Plan charges a total annual-asset based fee, which combines the administrative costs along with underlying fund expenses. This total fee is not charged out of pocket. But it’s factored out of all assets in the portfolio you invest in, so you’ll bear a pro-rata share. Still, the fees are significantly low especially when you compare them to the costs of investing in another state’s 529 plan. Total annual asset-based fees currently range from about 0.05% to 0.15%.
But remember that portfolio options and related fees are subject to change. So be sure to check your investments periodically. Federal law allows you you to change investments twice per year. A financial advisor can help you update investment options accordingly as your financial situation and savings goals change.
Tax Benefits of North Carolina’s 529 Plan
When you invest in the NC 529 Plan, your earnings grow tax-deferred. This means they won’t be subject to state or federal income tax while they’re invested. And withdrawals are also tax free as long as you use the funds on qualified higher education expenses such as tuition and books required for enrollment.
However, you or your beneficiary will face some tax burdens if you withdraw money for virtually anything that’s not a qualified higher education expense. This is known as a nonqualified withdrawal, and the earnings portion will be subject to federal and state income tax as well as a 10% penalty.
You should seek a North Carolina financial advisor or tax professional to discuss how a nonqualified withdrawal may affect you based on your particular circumstances.
You can also speak to your advisor about additional 529 plan benefits that may appeal to you. If you’re an affluent individual, for example, you might be concerned about gift or estate tax implications. But, 529 plans allow you to give money to students while avoiding gift tax even if it’s a large sum.
What Are My Investment Options?
The NC 529 plan offers a diverse investment menu. Your choices include age-based options and static portfolios.
Age-based portfolios automatically change their asset allocation over time in order to become less risky as your beneficiary gets closer to college. All you have to do is choose one, which is recommended to be the portfolio named after your beneficiary’s age. When you first open the account, age-based portfolios generally focus more on investing in growth-oriented securities like stock funds with an aim to generate maximum returns by taking on more risk. But as your beneficiary gets closer to the college years, the portfolio changes gears and focuses more on generally safer options like bond funds in an attempt to preserve your earnings and get a steady return.
However, the NC 529 Plan lets you choose one of three tracks for age-based portfolios. Each is based on a specific risk profile. For example, the Aggressive Track invests a decent amount of your money in stock funds even when your beneficiary is closer to college. So by the time your beneficiary reaches age 17, you’d be 25% invested in stocks. Its corresponding “Conservative Track” will be invested in no stocks and 100% short-term reserves by then—these are considered to be less risky investments overall.
If you’re not sure about your investment choice, you can use our asset allocation calculator to see how portfolios can be built based on a specific risk level. You can use this to explore the plan’s individual portfolios. Each of these options invests in a single underlying mutual fund and you can choose to invest in one or more.
You can also invest in an FDIC-insured account, which may be suitable for someone with a very low risk tolerance or someone who has been saving for a while and wants to protect the plan’s earnings.
But keep in mind that portfolio options are subject to change, so be sure to check on your investments on a regular basis. You’re allowed to change investments twice per year without penalty. A financial advisor can help you choose an investment option that’s right for you and can guide you through the entire college savings process.
Underlying mutual funds in the plan’s age-based and individual portfolios are managed by Vanguard, a leading investment firm known for low fees.
How Do I Withdraw Money from College Foundation of North Carolina?
You can request a withdrawal by logging on to your account. The payment can be made to you, yourself or the educational institution.
But if you still have questions about opening a 529 plan account, you can use our financial advisor tool. It asks you a few simple questions to connect you with financial advisors in your area based on your preferences. First, you answer a series of questions about your situation and goals. Then, the program narrows down several advisors to three who can meet your needs. You can read their profiles to learn more about them, interview them on the phone or in person and choose which one to work with in the future. This allows you to find a good fit while we do most of the hard work for you.