Virginia sponsors ttw0 529 college savings plans that allow you a tax-advantaged investment vehicle to put money away for your child’s future education. It has a direct-sold and an advisor-sold. Virginia used to offer a prepaid tuition program, but it closed to new investments in 2019. Its Invest529 direct-sold plan allows you to start investing with as little as $25 towards low-fee investment portfolios. The CollegeAmerica option features the guidance of a professional financial advisor, and the Prepaid529 allows you to pay for tuition at today’s prices to redeem semester credits in the future regardless of how much costs rise. Virginia excels with its breadth of 529 options and its high $500,000 maximum contribution limit per beneficiary. Still, you’re not limited to one plan, and a financial advisor can help you create a customized savings strategy utilizing multiple options.
| Plan Name | Program Type | How to Enroll | Fees |
|---|---|---|---|
Invest529
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|
College Savings Plan | Direct-Sold | 0.10% - 0.77% |
CollegeAmerica
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|
College Savings Plan | Advisor-Sold | 0.50% - 2.21% |
Invest529
The first Virginia 529 plan option, Virginia Invest529 plan definitely shines in the world of direct college savings plans with its low-fee investment portfolios and the option to choose from passive and actively-managed strategies. Any saver, even one with no investment knowledge, can find a suitable portfolio option. Those new to investing may be interested in age-based portfolios that automatically change their asset allocation or investment mix to take on less risk as your child gets closer to college—when your savings would have the most impact. Investment research firm Morningstar even gave the plan a Gold rating for its low fees and performance.
How Do I Enroll in the Virginia Invest 529 Plan?
You can enroll in the Virginia Invest 529 plan online. The process should take a few minutes if you’ve collected the following details about yourself and your beneficiary:
- Addresses
- Birthdates
- Social Security or tax identification numbers
- Your bank account and routing numbers if you’re making your initial payment online
You can also fill out a paper application, but online enrollment is the quickest and easiest way to open an account as you need to pay a $50 application fee for the paper version. In addition, you’d need to select your investment option at time of enrollment.
How Much Does the Invest529 Plan Cost?
Each portfolio option in the Virginia Invest529 plan charges a total annual asset-based fee between 0.10% and 0.62%, a palatable range that makes the plan stand out for its low fees. The total fee isn’t charged directly out of your pocket. It’s indirectly factored out of total assets in portfolios and underlying mutual funds, so your account bears a pro-rata share based on your portfolio option or options.
If you invest $10,000 in a portfolio with a high-end total annual asset-based fee of 0.77%, your fees would amount to just $80 in a year. This estimate assumes a 5% compound annualized rate of return and a constant total asset-based fee throughout that time span.
Tax Benefits of Invest529
Virginia tax payers who open an account with Invest529 can deduct up to $4,000 from their state taxable income. However, the plan is open to all U.S. citizens and resident aliens. All account holders can contribute toward the plan knowing their investment will grow tax-exempt, and it can take advantage of compound interest. In addition, withdrawals from the plan are also tax-free when you use them on qualified higher education expenses.
However, you may run into some trouble with the IRS If you take money out of the plan for anything else. This is known as a nonqualified withdrawal and it may be subject to federal income tax as well as a 10% penalty. You should speak to a qualified tax advisor about the tax implications of a nonqualified withdrawal based on your unique circumstances.
What Are My Investment Options?
The Invest529 offers several investment portfolios built with underlying mutual funds that leading investment firms like Vanguard and DFA Investment Dimensions manage. Those who aren’t too familiar with investing may be interested in the age-based portfolios. These portfolios don’t require you to make any stock picks. Instead, they automatically adjust their asset allocation. You can choose one named after the year you expect your child to enroll in college. As that date approaches, the portfolio switches focus from growth-oriented investments like stock funds to less risky investments like bond funds in order to aim for preserving your earnings when your savings matter most.
In addition, you can choose from either passively managed or actively managed portfolios. The investment mix for these remains constant throughout the life of the investment, and it’s based on a specific risk profile. Passively managed portfolios are built with index funds. These funds aim to replicate the performance of a benchmark index built with specific securities like U.S. stocks. These funds tend to carry lower fees because of the passive nature of the securities selection process. Investment managers who run actively managed funds, on the other hand, try to beat the market rather than mimic it by using their own research, models and expertise to pick which securities should build a fund.
You can also invest in an FDIC-insured bank account managed by Virginia529, which oversees Invest529.
How Do I Withdraw Money From Invest529?
You can request a withdrawal online or by filling out a paper form. You can direct payments to yourself, your beneficiary or an educational institution.
CollegeAmerica
If you don’t want to embark on a college savings journey for your child on your own, you may find the CollegeAmerica 529 Plan suitable. This plan offers the same tax benefits as the Invest529 Plan, but you can invest in a different investment menu and you’ll also receive the guidance of a qualified financial advisor throughout every step of the college savings process.
How Do I Enroll in Virginia’s CollegeAmerica?
You can find a financial advisor to help you enroll in the CollegeAmerica 529 Plan sponsored by the state of Virginia. Your advisor can guide you through the investment selection process and help you navigate the entire 529 college savings terrain.
When choosing a financial advisor to work with, however, make sure you pay close attention to his or her qualifications and compensation structure. Not all advisors are held to the same standards. Some are fiduciaires, which means they are legally obligated to work in your best interests. Others are not. A Registered Investment Advisor (RIA) is held to strict standards and registered with the Securities and Exchange Commission (SEC). But not all with the title financial advisor are required to do so. Compensation structure is also very important. A Certified Financial Planner (CFP) usually works on a fee-only basis, while other advisors get paid on commissions off the investments they recommend. The right fit ultimately depends on your preferences and financial circumstances, so make sure you ask your advisor questions.
How Much Does the CollegeAmerica Advisor Plan Cost?
The cost of investing in the CollegeAmerica advisor-sold 529 plan depends on which portfolio option you choose as well as its corresponding share class. You’ll also be receiving professional guidance throughout the savings process, so you may encounter fees not always found in direct plans. An example is a sales charge, which can vary depending on share class as well as other circumstances.
Portfolios with share Class A units for example charge an initial sales charge, which is taken from each contribution. Portfolios with share Class C units charge a contingent deferred sales charge (CDSC), which usually kicks in when you take money out of the plan within a certain time after putting it in. Portfolios with class E share class don’t levy sales charges, but you have to meet some requirements to invest in that share class.
In addition, each portfolio charges a total annual asset-based fee as portfolios in the direct plan. You should have a thorough discussion with your advisor about which portfolio and share class option is best for you based on your risk level, savings goals and the amount of time you plan to invest.
Below are more detials about how current fees break down based on share class.
Class A
- Maximum initial sales charge: 5.75%
- Total annual asset-based fee for portfolios: 0.44% - 1.32%
Class C
- Maximum contingent deferred sales charge (CDSC): 1.00%
- Total annual asset-based fee for portfolios: 0.45% - 2.10%
Class E
- Sales charges: None
- Total annual asset-based fee for portfolios: 0.43% - 1.48%
Tax Benefits of The CollegeAmerica 529 Plan
The CollegeAmerica 529 Plan offers the same tax benefits as the Invest 529 Plan. So your contributions grow tax deferred and your withdrawals are tax free when you use the money on qualified higher education expenses. However, you’ll run into the same problem you would with the direct-sold plan for taking money out of the plan for a nonqualified expense. Speak to an advisor to try to come up alternatives that don't require you to tap into your child’s education savings. In addition, you should ask about additional benefits. All 529 college savings plans, for example, offer specific gift tax and estate tax benefits.
What Are My Investment Options?
The CollegeAmerica 529 Plan offers several investment portfolios with underlying funds that AmericanFunds manages. You can choose from target-date funds (TDFs), which work similarly to the age-based portfolios in the direct plan. These portfolios automatically change their asset allocation to become less risky as your child gets closer to the expected college enrollment year.
You can also invest in the portfolio series. Each portfolio option in this category invests in a variety of asset classes based on a specific risk level. The plan also lets you invest in individual mutual funds that AmericanFunds manages. Your advisor can help you tailor a specific investment strategy supported by individual mutual funds or a combination of other portfolios in the CollegeAmerica plan.
How Do I Withdraw Money from Virginia’s CollegeAmerica Plan?
You can request a withdrawal from the CollegeAmerica 529 plan by logging onto your account or filling out a distribution form. However, you should reach out to your advisor before you make a withdrawal in order to discuss how best to use the distribution, as well as any potential tax implications.
