What's a 529 College Savings Plan?
529 College Saving Plans are tax-advantaged investment vehicles designed to help you set aside money for the future costs of higher education, for you or your loved ones.
Why invest in a 529 College Savings Plan?
529 College Savings Plans allow you to invest post-tax dollars and grow your funds tax-free, as long as they’re used for qualified education expenses. Allowed expenses include tuition, books, supplies, equipment, room and board, and other associated fees required for study at any accredited college, university, or vocational school in the United States and at some foreign universities. In addition, 529 plans have a minimal impact on a student’s eligibility for financial aid.
What type of plans are available?
There are two types of 529 plans: prepaid tuition plans and savings plans.
Prepaid Tuition Plans allow for the pre-purchase of tuition based on today's rates and then pay out at the future cost when the beneficiary is in college.
Savings Plans, which are the most popular, are like many other investments and typically include mutual funds.
Most 529 savings plans offer a variety of investment options and many allow you to choose a simple strategy that automatically adjusts the balance of investments (stocks vs bonds) based on the age of the beneficiary, similar to how a target-date fund in a retirement plan might function.
How are plans sold?
Sometimes, plans are sold through financial advisors, but most are sold directly by states — every state (except Wyoming) and the District of Columbia offers at least one 529 College Savings Plan. (You can contribute to multiple plans.) The advantage of direct-sold plans is that they have no broker fees and, as a result, are often recommended as a better consumer option.
Do I have to buy a plan in my home state?
No, but it’s worth keeping in mind that over thirty states and the District of Columbia offer an annual state income tax deduction for resident contributions, and six states offer a tax deduction for contributions into any state’s plan. This is an important consideration when choosing a plan. If your state offers a tax deduction and a savings plan that is well rated, then it may be just the plan for you.
What happens if my child decides to not go to college?
529 Plans are generally used to save for college expenses but can be used for K-12 tuition without federal tax penalties. However, you will need to check if your state tax law would apply a penalty. If the plan beneficiary chooses not to go to college, you can change the beneficiary to another family member. If you withdraw the assets for non-qualified expenses, the earnings portion, though not the contributions, would be subject to tax plus a penalty.
How do I get started?
SoFi’s 529 Savings & Selection Tool allows you to estimate how much you’ll need to fund your college goal and presents two 529 College Savings Plan options based on the information you provide about your unique circumstances. Visit SoFi.com/XXXX (See note below) to access the tool and get started.
What are the benefits of the 529 Plan Selection Tool?
This tool has two distinct benefits. First, it provides a monthly savings target based on the full price of the institution type selected and a projection that includes the average financial aid of the institution type. Second, it evaluates fifty Direct Sold 529 Savings Plans to provide a recommended and an alternate plan based on the estimated state income tax benefits and fees associated with each plan.
How does the tool determine recommended and alternate plans?
The tool examines expected state tax benefits from your contributions and the fees charged by the plan. It also uses the income information you provide, your state of residence, and fee information from the plans. The recommended plan is always the plan with the highest projected value, considering potential state income tax benefits and fees. An in-state plan will always be included as either Recommended or Alternate.
What 529 Plans are considered in the tool?
We consider fifty Direct Sold 529 Savings Plans. This includes one from each state (except WY) and the District of Columbia.
How does the tool estimate the cost of college?
We present the estimated additional savings needed based on two scenarios – sticker price and net price. The sticker price assumes that the student does not receive any financial aid and the net price assumes that the student receives the average annual financial aid associated with the type of institution selected.
How does the tool estimate financial aid?
We consider financial aid in the Net Price method of estimating college expenses. We assume that the individual will receive the average financial aid based on the type of institution as specified in the College Board Annual Survey of Colleges.
How does the tool determine how much money I will have saved up?
The growth projection is based on long-term projected returns of various risk levels and assumes the asset allocation becomes more conservative over time. We assume costs increase by the inflation rate associated with that type of institution
How do I enroll in a plan that the tool recommends?
At the end of the tool, click on the link for either the recommended or alternative option to visit the plan's website in order to directly enroll in the plan.
Something is not working! How can I get help?
If you have a question not covered by these FAQs, please contact SoFi at: (833) 277-7634 (Monday - Thursday 7am-12am ET; Friday - Sunday 7am-8pm ET) or by chat.