529 College Savings Plans in Rhode Island

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As the costs of higher education rise, parents are struggling to find ways to send their kids to college without accruing a mountain of debt. To help you in the process, the state of Rhode Island sponsors the CollegeBound Savers program, a 529 college savings plan that allows you to start investing in your child’s education as early as at birth. The plan offers several low-fee investment portfolios including ones that automatically change their asset allocation to become less risky as your child approaches college age. Rhode Island residents pay even smaller fees than out-of-state account holders. Ocean State married couples can deduct up to $1,000 in contributions from their state taxable income per account each year. Individuals can deduct up to $500 in contributions. 

How Do I Enroll in Rhode Island's Direct-Sold 529 Plan?

The easiest way to enroll in the CollegeBound Saver program is online. The process should take about 15 minutes. Or you can download an Enrollment Form and mail it in. You’ll need the following for yourself and your beneficiary: address, birthdate, Social Security number or Tax Identification Number and your bank account and routing numbers if you’re making your initial contribution electronically.   

How Much Does Rhode Island’s Direct CollegeBound Saver Program Cost?

Each investment portfolio in Rhode Island’s direct 529 plan charges an annual asset-based fee that currently ranges from 0.03% to 0.35% for Rhode Island resident account holders and from 0.28% to 0.35% for out-of-state account holders. One of the reasons non-state residents have larger fees is because the total annual asset-based fee includes a program management fee, which is waived for Rhode Island residents. The total annual asset-based fee is deducted from your investment portfolio.

So if you invest $10,000 in the Conservative Growth Portfolio with a total annual asset-based fee of 0.38%, your fees would amount to just $166 in 10 years. This scenario assumes the following: 

• A $10,000 initial contribution is invested. 
• You get a 5% annually compounded rate of return for 10 years. 
• You withdraw all funds from the account after 10 years for qualified expenses.
• The total annual asset-based fee remains the same. 

Keep in mind that fees and portfolio options in the plan are subject to change, so it’s important to check your investments periodically.

Tax Benefits of Rhode Island 529 Plans

Ocean State residents who open accounts with the Collegebound Saver Program can deduct up to $500 from their state taxable income or $1,000 if married filing jointly. However, any legal-aged U.S. citizen or legal alien with a valid Social Security number or Tax Identification Number can open an account. 

All account holders who invest in the plan can enjoy tax-free earnings on their contributions. This means your money can grow in the market tax-free, and you can take full advantage of compound interest. When you take money you out of the plan, it won’t be taxed as long as you use it to fund qualified higher education expenses such as tuition at eligible institutions. You can use 529 plan money at virtually any accredited institution from vocational schools to four-year universities that accept financial aid from the U.S. Department of Education. Some foreign schools are eligible as well. 

As of tax changes signed into law in 2017, you can also withdraw up to $10,000 each year tax free to pay for tuition at K-12 private, public and religious schools. Additionally, thanks to the SECURE Act, which was signed at the end of 2019, costs associated with apprenticeship programs count as eligible qualified expenses. The SECURE Act also allows people to withdraw up to $10,000 tax free to pay for student loans (this is a lifetime amount).

If you don’t use 529 plan money as it was intended, however, you'll face taxes and penalties. When you take money out for anything other than a qualified college expense, you’ve made a nonqualified withdrawal. It may be subject to federal income tax and a 10% penalty. You may also have to pay back some or all previously claimed state tax deductions. 

Speak to a financial advisor or tax professional about how a nonqualified withdrawal may affect you based on your personal circumstances. 

What Are My Investment Options?

The CollegeBound Saver Program that Rhode Island sponsors offers several portfolio options designed for savers who have various risk levels and investment experience. 

If you’re new to investing, you may be interested in an age-based portfolio. These options automatically change their asset allocations over time to become less risky as your child gets closer to college age. When your child is young, it invests primarily in stock mutual funds, which generally have strong growth but at more risk. As your child gets older, the asset allocation gradually shifts to safer options like bond funds in order to protect your capital for when you'll need to make withdrawals. 

You can also invest in Target Risk portfolios. The asset allocations for each of these portfolios stay constant and are based on a specific risk level. If you want to change your risk level, you'll have to transfer your balance to a different portfolio.

If you’re not sure what type of investment mix matches your risk tolerance, use our asset allocation calculator. You can then use this information to explore the plan’s individual portfolios. Each invests in a single underlying fund, which in turn invests in a different asset class like stocks and bonds. You can choose one or more of these options.

How Do I Withdraw Money from the CollegeSaver Direct 529 Plan?

You can request a withdrawal online by logging on to your account or by downloading a distribution request form and mailing it in. You can choose to receive the payment electronically or via check to yourself or your beneficiary. You can also have it sent directly to the school. 

How Can I Save More with Rhode Island’s Direct 529 Plan?

There are plenty of ways to save money on college expenses by participating in Rhode Island’s CollegeBound Saver Program. The plan makes requesting monetary donations to your child’s 529 plan as easy as making a few clicks. By signing up for the Ugift program, you will get a unique gift code that you can share with friends and family via social media or email. One way to maximize savings is to share this code when a special occasion such as a birthday comes up, and you can request donations to the 529 college savings plan in lieu of physical gifts. You can even download and print a physical card with the code to hand out to friends and family.  

There are no fees involved with using Ugift for you or the gift giver, and the entire amount donated will be deposited into the designated 529 plan account. 

You can also sign up for Upromise, a program that lets you transfer cash-back rewards directly to your 529 plan account. You will get cash back by using your Upromise Mastercard for eligible purchases at participating businesses that include restaurants, grocery stores and airlines. These are some of the ways you can maximize your savings for college.

Find an Advisor

If you’re not comfortable plunging into the world of 529 college savings plans on your own, the advisor-sold version of the CollegeBound program may be right for you. Through a local financial advisor, you can open an account. Your advisor will lead you through the enrollment process and help you select a portfolio and share class option that meet your unique financial situation and savings goals. But because you’d be receiving professional assistance, this plan may come with fees that the direct-sold plan does not have. Be sure to examine your advisor’s compensation model thoroughly and discuss how fees may impact your long-term savings. 

How Do I Enroll in Rhode Island’s Advisor-Sold 529 Plan?

You'll need to find a local financial advisor to open an account. When interviewing candidates, you should ask questions especially about their qualifications and credentials. You should also make sure you understand their compensation structures. Fees from one advisor to another can vary and have a significant impact on your savings in the long run. 

How Much Does Rhode Island’s Advisor-Sold 529 Plan Cost?

The price of investing in the CollegeBound advisor-sold program ultimately depends on the portfolio and share class (units) you choose. But because you’d be getting the professional guidance of a qualified professional, advisor-sold plans may charge fees that the direct-sold option does not have. These include fees paid to advisors and other intermediaries for managing the plan. An example is a sales charge. 

Initial sales charges are taken out of each contribution. Contingent deferred sales charges (CDSC) are usually triggered when you take a withdrawal or distribution within a certain amount of time after making a contribution. Sales charges vary, depending on your share class. They can be reduced or waived in certain circumstances. Currently, asset-based fees for this plan range from 0.16% to 2.07%, depending on the share class.

In addition, the plan also charges a total annual asset-based fee, which varies, also depending on your portfolio option and share class. Whether you’re a Rhode Island resident or out-of-state resident also determines certain fees. But keep in mind that you can also invest in out-of-state 529 college savings plans if you find one more appealing than those sponsored by your state.

Tax Benefits of Rhode Island’s Advisor-Sold 529 Plan

The CollegeBound program offers the same tax benefits as the direct-sold option. This means you can enjoy tax-exempt growth, and your withdrawals will also be tax-free as long as you use them on qualified higher education expenses. 

Should you use 529 money for nonqualified expenses though, you’ll face tax and penalty consequences:  As with the direct-sold option, nonqualified withdrawals are subject to federal income tax and a 10% penalty. You may also have to pay back some or all previously claimed state tax deductions. You should discuss the pros and cons of making a nonqualified withdrawal carefully with your financial advisor. In some instances, the 10% penalty can be waived. 

In addition, you should talk to your advisor about additional 529 plan tax benefits that may appeal to you. For example, affluent individuals may be interested in their exclusive estate-tax benefits. These college savings plans also open the door for several opportunities to give money to students while avoiding gift tax. 

What Are My Investment Options?

Your advisor can help you construct a unique investment strategy based on your individual financial situation and goals. The plan offers 10 age bands and three target-risk portfolios.. Each invests in a specific asset class,  including equity (stocks), fixed income (bond) and capital preservation. The plan also has 11 individual-fund investment options. 

How Do I Withdraw Money from the CollegeBound 529 Program?

You can request a withdrawal by logging on to your account or by mailing in a distribution request form. You can also contact your financial advisor.  

If you’re not sure how to find a professional, use our free SmartAdvisor tool. It will match you with up to three local advisors based on your preferences, including someone who specializes in helping families save for college. 

Check Out Other 529 Plans

You do not have to live in Rhode Island to invest in its 529 plan. Take a look at these other states' 529 plans.