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Tips to help choose the right 529

 
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Not All 529 Plans Offer Same Tax Benefits

The Education Plan® Offers Tips for Selecting the Right Plan

When choosing a 529 college savings plan, investors have options to consider. The Education Plan®, New Mexico’s 529 plan, offers the following tips.

  • If you live in a state that has state income tax, most 529 plans selected by residents of that state will be eligible for a tax deduction or tax credit for money invested in the 529 plan. Tax rules vary from state to state. Some 28 states plus the District of Columbia restrict investors to in-state plans only to receive the tax benefit.
  • Six states offer full tax parity, which allows investors to pick any state’s 529 plan and still receive a tax deduction from their state of residence. The six states are Arizona, Kansas, Minnesota, Missouri, Montana and Pennsylvania. Arkansas provides a larger deduction for contributing to the Arkansas 529 plan.
  • The remaining 16 states offer no state tax deduction or credit for 529 plan contributions, so selecting a 529 plan is state tax neutral for residents of these states.
  • Given the differences in plan costs and the state income tax benefits available, it is possible to determine how much of the 529 plan costs can be covered by the tax benefit.
529 Tips to Help You Choose
  • Assuming an investment in the plan’s age-based or year of enrollment portfolios, a 6% annual return and an annual contribution of $2,400, the research shows that only nine states offer a combination of low cost and tax benefits that will cover the cost of the plan for an 18 year period. The Education Plan®, New Mexico 529 college savings plan, is one of the nine.
  • Another choice 529 investors will have to make is when to begin investing. Research finds that tax benefits both federally and on state taxes are typically optimized when 529 investors start saving early and wait to spend the assets until needed for college-related expenses. Most 529 investors don’t start until a child is seven years old. Each year that investors delay reduces the capacity for their savings to benefit from compounded investment returns. Even starting one year earlier can significantly increase the ending account balance when the time comes to use the funds for approved expenses.
  • When 529 plans were introduced in 1996, they were initially created to cover the costs of college. Since that time, the scope has expanded to include federally qualified private K-12 education and education-related expenses for any two-year, four-year or trade school, such as tuition, room and board, books and meal plans. In 2019, an act was passed that allows individuals to take tax-free distributions for student loan repayment and apprenticeship programs from their 529 accounts.
  • 529 investors also have to consider how to invest the money they are contributing to the account. While offerings in investment options vary by state, plans increasingly favor transitions from stocks to bonds through age-based or year of enrollment portfolios. These portfolios start with equity-heavy allocations to maximize investment returns in the earlier years and become more conservative as the time nears to use the funds. Regardless of how a 529 plan is invested, investors will optimize benefits when they start early and stay invested.

“Investing in education for a child, another loved one or even yourself is one of the most important investments you can make,” said Ted Miller, Executive Director of the Education Trust Board of New Mexico, the organization that sponsors The Education Plan®. “Our team is available to help investors in New Mexico and around the nation understand the benefits of investing in a 529 plan.”


For more information, go to theeducationplan.com or call 1(877) 337-5268.

Contact: Joanie Griffin (505) 261-4444, jgriffin@sunny505.com

 

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For more information about The Education Plan, call 1.877.337.5268 or view the Plan Description and Participation Agreement, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing.

Please Note: Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program. You also should consult a financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to contact directly your home state’s 529 plan(s), or any other 529 plan, to learn more about those plan’s features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.

The Education Plan is administered by The Education Trust Board of New Mexico. Ascensus College Savings Recordkeeping Services, LLC, the Program Manager, and its affiliates, have overall responsibility for the day-today operations, including investment advisory, recordkeeping and administrative services. The Education Plan’s portfolios invest in: (i) mutual funds; (ii) exchange traded funds; and/or (iii) a funding agreement issued by New York Life. Investments in The Education Plan are not insured by the FDIC. Units of the portfolios are municipal securities and the value of units will vary with market conditions.

Investment returns will vary depending upon the performance of the portfolios you choose. You could lose all or a portion of your money by investing in The Education Plan depending on market conditions. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences.

Ugift is a registered service mark of Ascensus Broker Dealer Services, LLC.

The Education Plan® and The Education Plan® Logo are registered trademarks of The Education Trust Board of New Mexico used under license.

All other marks are the exclusive property of their respective owners.

Not FDIC-Insured. No Bank, State or Federal Guarantee. May Lose Value.