The my529 plan sponsored by the state of Utah offers several tax benefits to all investors who participate to sock money away for their children's future education. And Utahns in particular get a little bit of an extra bump through tax credits on their state taxable income. The plan allows any U.S. citizen or resident alien to invest in a variety of portfolios, including age-based options that automatically rebalance their asset allocation to take on less risk as your child gets closer to the college years. The plan has a high maximum contribution limit at $446,000 per beneficiary and has low-fee portfolio options. Though Utah doesn't offer an advisor-sold plan like other states, you can always use SmartAsset's SmartAdvisor matching tool to get paired with an financial expert who can create a customized strategy for your college savings needs.
How Do I Enroll in Utah’s 529 Plan?
You can set up an account with my529 online in about 10 minutes. You’d need the following information about yourself and your beneficiary:
- Social Security number or Tax Identification Number
- Your bank account and routing number if making initial payment electronically
In addition, you’d need to select your investment portfolio option or options when you enroll.
How Much Does Utah’s 529 College Savings Plan Cost?
Each portfolio in the my529 plan charges a total annual asset-based fee, which combines a state administrative fee as well as underlying mutual fund expenses. This total fee isn’t charged directly out of your pocket, but it’s factored out of assets in the portfolio you invest in. So your account bears a pro-rata share of the expenses. However, the fees are low compared with several direct plans sponsored by other states. The total annual asset-based fee currently ranges from 0.150% to 0.595%.
Tax Benefits of Utah’s 529 Plan
Contributions toward a my529 plan grow tax-exempt, which means Uncle Sam won’t touch what you’ve earned in the market and you can take advantage of compound interest. Withdrawals are also tax-free if they are used for qualified higher education expenses.
And although the plan is open to all U.S. citizens, Utah taxpayers get additional benefits. They may take a 5% state income tax credit on contributions up to a certain limit—if the beneficiary was younger than age 19 when the account was opened. A Utah-based corporation may take a 5% tax deduction up to certain limits as well. Check with the plan as these limits are subject to change each tax year.
It’s also important to note that you may face tax consequences if you make non qualified withdrawals, which are triggered when you take money out of the plan for anything other than a qualified higher education expense. The earnings portion of a nonqualified withdrawal may be subject to federal income tax and a 10% penalty. In addition, Utahns may need to pay back previously claimed state income tax credits or deductions
Very few exemptions exist for the 10% penalty such as the beneficiary’s death, disability, receipt of a scholarship, or attendance at a U.S. service academy.
Seek a professional tax advisor for more information about how nonqualified withdrawals will affect your individual tax situation. You can also speak to your advisor about additional tax benefits exclusive to 529 college savings plans. For example, these plans let you make large contributions to students and avoid gift tax.
What Are My Investment Options?
Your investment options include age-based portfolios that automatically change their asset allocations to become less conservative as your child approaches college age. However, my529 allows you to invest in an age-based portfolio based on a specific risk track. If you have a high tolerance, for example, you may be attracted to the aggressive track. When your child is 19 years old, this age-based portfolio would still invest 10% of your money in stocks, which are generally considered more volatile but also have potential for a strong return. The conservative track counterpart, however, would be entirely invested in generally safer options like bond funds when your child turns 19.
You can also choose from eight Static portfolios. These diversified options with set asset allocations offer exposure to different asset classes including stocks and bonds.
Investors who want more control over their portfolio’s asset allocation can create a customized portfolio with one or more underlying funds in the my529 plan. You can build your customized option based on your personal risk level and savings goals. If you’re not sure what your investment mix should look like, you could use our asset allocation tool to see how investment combinations break down based on different risk levels.
When creating a customized investment portfolio, you should seek a qualified financial advisor who can help you tailor one based on your unique financial situation and long-term investment goals.
Underlying investments in the my529 plan are currently composed of mutual funds that leading investment firms Vanguard Group and Dimensional Fund Advisors manage.
But keep in mind that investment options are subject to change. So be sure to periodically review your investments. And always give your college savings strategy a year-end check-up.
How Do I Withdraw Money from my529?
You can request a 529 plan withdrawal online by logging on to your account. You can also download and mail or fax a withdrawal request form. You can transfer funds to your beneficiary by check or electronically. You can also send the payment directly to the educational institution.
However, you’re not limited to Utah’s 529 plan. Any U.S. citizen can open multiple 529 plan accounts regardless of which state sponsors them, so be sure to weigh the pros and cons across the board. If you’re reluctant to approach the 529 field alone, you can use our free tool to find a financial advisor in your area based on your unique goals and preferences. You can also compare advisors’ credentials and qualifications.