Pennsylvania sponsors two tax-advantaged 529 college savings plans to help you plan for your child’s future education. One plan is direct-sold, and the other is a prepaid tuition program. You can invest in both and contribute a combined maximum of $511,758—one of the highest limits in the country. Pennsylvania families can also deduct a sizable $30,000 in contributions from their state taxable income, making the Keystone State one of the most tax-friendly in the nation when it comes to 529 plans. However, the prepaid Guaranteed Savings Plan may not be enough to cover all educational expenses, and the Pennsylvania 529 Investment Plan charges an annual account-maintenance fee unless you meet certain requirements. And though the state doesn’t sponsor an advisor-sold option, you can nonetheless use our SmartAsset Advisor mathcing tool to get paired with an expert who can help you create a personalized, goal-oriented 529 savings strategy for you.
|Plan Name||Program Type||How to Enroll||Fees|
|PA 529 Investment Plan Read Review||College Savings Plan||Direct-Sold||0.18% - 0.55%|
|Pennsylvania 529 Guaranteed Savings Plan Read Review||Prepaid Tuition Plan||Direct-Sold||Varies|
PA 529 Investment Plan
The PA 529 Investment Plan (IP) offers a range of benefits. Pennsylvania taxpayers can deduct a portion of their contributions on their state income taxes. In addition, the entire account balance is exempt from Pennsylvania inheritance tax, and the money in the plan doesn’t affect a student’s eligibility for state financial aid. You can open account with as little as a $25 deposit, and you can invest in a range of investment options with Vanguard managing underlying funds at low fees. Your portfolio options include age-based portfolios that automatically change their asset allocation to become less risky as your child gets closer to college age.
How Do I Enroll in the PA 529 Investment Plan?
The easiest way to open an account is to do so online at CollegeAdvantage.com. The entire process should take about 10 minutes as long as you gather the following information about yourself and your beneficiary.
- Social Security numbers or tax identification numbers
- Your bank account and routing number if making initial contribution electronically
You can open an account with a minimum of $25. However, you’d need a minimum of $500 if you’re investing in a CD with Fifth Third Bank.
In addition, you can open an account by completing a CollegeAdvantage Account Application form and mailing it in. Either way, you’re required to choose an investment option or options at time of enrollment.
How Much Does Pennsylvania’s 529 Investment Plan Cost?
Each portfolio in the PA 529 Investment Plan charges a total annual asset-based fee, which currently ranges from 0.36% to 0.50%. These fees combine an operational support fee and a state fee along with expense ratios for the mutual funds included in the portfolio. The total fee is not charged directly, but factored out of assets in the entire portfolio you invest in. So your account bears a pro-rata share. Still, the plan portfolio with the highest fee is still relatively inexpensive to invest in compared with portfolios found in other plans.
However, you’d also owe a $10 annual account maintenance fee unless you opt to receive all documents electronically.
Tax Benefits of Pennsylvania’s 529 Investment Plan
Pennsylvania taxpayers can deduct up to $15,000 in contributions per beneficiary per year from their Pennsylvania state taxable income. Married couples filing jointly can deduct up to $30,000 in contributions, making Pennsylvania one of the most generous among plans that allow tax-deductible contributions.
In addition, money you contribute toward the PA 529 Investment Plan grows tax free and won’t be subject to federal income tax every year. Money you take out of the plan isn’t taxed either as long as you use it for qualified higher education expenses like tuition and mandatory school fees.
However, you may run into some trouble if you use 529 plan money on anything else. Nonqualified withdrawals may be subject to federal and state income tax as well as a 10% penalty. You may also have to pay back previously claimed deductions. You should seek a qualified financial advisor or tax professional to discuss how a nonqualified withdrawal may impact you based on your unique circumstances.
What Are My Investment Options?
The PA 529 Investment Plan offers age-based and individual portfolios designed for savers at all risk levels. But if you’re new to investing, you may be interested in age-based options. In a nutshell, age-based portfolios aim to become less risky as your child gets closer to college by investing in generally safer securities like bond funds over time. However, the PA 529 plan allows you to put your portfolio on three tracks based on your risk level: conservative, moderate and aggressive. So if you have a high risk tolerance, you can choose the aggressive option. This portfolio would still invest 25% of your money in growth-oriented securities like stock funds such when your child is 18-years-old. Its conservative counterpart, on the other hand, would be entirely invested in bonds and short-term reserves by then.
If you’re not sure what your portfolio should look like, you can use our asset allocation calculator tool to see how portfolio’s investment mixes can break down based on risk level. You can use the data to explore the plan’s individual portfolios. Each one of these invests in a single underlying mutual fund. And the PA 529 Plan individual portfolios cover all major asset classes and even socially responsible investments. You can choose from one or more of these options to create a personalized investment strategy based on your goals and financial situation. If you’re not sure how to customize an investment strategy with individual portfolios, you can reach out to a financial advisor to guide you through the process.
But keep in mind that portfolio options are subject to change, so it’s a good idea to periodically check up on your investments. You should also give your overall college savings strategy a year-end check up.
How Do I Withdraw Money from the PA 529 Investment Plan?
You can request a withdrawal from your PA 529 Investment Plan by logging on to your account online. You can also download a withdrawal request form. Payments can be made yo you, your beneficiary or the school you’re funding.
Pennsylvania 529 Guaranteed Savings Plan
The PA 529 Guaranteed Savings Plan (GSP) is a type of 529 Prepaid Tuition Program that the commonwealth of Pennsylvania sponsors. Unlike its direct-sold counterpart, your benefits won’t be directly tied to the ups and downs of the market. Instead, this college savings plan allows you to purchase college credit hours for anything from in-state community colleges to private schools at today’s prices. Your child can redeem these in the future even if tuition has spiked by the time he or she is ready to enroll in college. If your child has credits left over, the student can use them to cover other qualified higher education expenses such as mandatory school fees and books required for enrollment.
How Does the PA 529 Guaranteed Savings Plan (GSP) Work?
When you open an account with the PA 529 GSP, you choose a tution level which can span from a two-year, in-state community college to a four-year private university. Each of these would have a different GSP credit rate, which changes each enrollment period.
Your account grows in line with tuition increases. So if you save enough to fund a four-year in-state university today, you can use your PA 529 GSP money to fund the same amount in the future even if tuition at Pennsylvania four-year colleges has increased dramatically by then. How does the plan do this?
The Pennsylvania Treasury Department pools account owners’ money and invests it in the GSP Fund. But even if the investment performance is dismal at any given time, the plan is obligated to fulfill its guarantees.
How Much Does the Pennsylvania Prepaid Tuition Program Cost?
Your contributions into the program depend on the tution level you choose and the GSP credit rate at the time of enrollment. In 2018, for example, you would need to buy about 96 GSP credits to cover four years worth of tuition at most Pennsylvania state colleges. The GSP credit rate for eligible Pennsylvania state colleges for the 2017-2018 enrollment period was $312.17. You should check with a PA 529 GSP representative for the latest rates.
In addition, there is a one-time $50 enrollment fee. This can be waived if you open an account within six months after your child’s birth or adoption date. You will also be charged a 0.10% annual account maintenance fee, which is deducted from your account. This fee can be reduced if you opt-in to receive all plan statements through email.
Tax Benefits of Pennsylvania’s 529 Prepaid Tuition Program
The PA 529 GSP offers the same tax benefits as its direct-sold counterpart. This means you can enjoy tax-exempt growth on your contributions, tax-free withdrawals on qualified higher education expenses, and exclusive gift-tax exclusions and more.
How Do I Enroll in the Pennsylvania GSP?
You can open an account online or by mailing in an enrollment application. However, you or your beneficiary must be Pennsylvania residents at time of enrollment.
How Do I Withdraw Money from Pennsylvania’s Prepaid Tuition Program?
You can fund qualified higher education expenses by logging on to your account. You can also mail or fax payments from the plan. You can direct payments to yourself, your beneficiary, the educational institution or even a third party such as a landlord.
But remember that you’re not limited to opening an account with just one plan. You can also open accounts with out-of-state 529 plans if you find them more beneficial.
If you’re looking for guidance about how best to investi n your child’s future education, you can use our free SmartAsset matching tool to find qualified financial advisors in your area based on your financial goals and unique circumstances. The tool narrows down your options to three professionals based on your preferences and answers to simple questions. You can then review their qualifications and set up interviews before choosing whom to work with.