Thursday, 25 April 2024
Updated on Monday, July 19, 2021
Virginia currently offers two 529 plans: Invest529, a direct-sold program, and CollegeAmerica, an advisor-sold program. Until 2019, Virginia also offered a prepaid 529 plan, but it’s been permanently closed to new enrollees.
The state contribution limit for 529 plans is $500,000 per beneficiary, which can be split between funds. In addition to federal tax benefits, plan owners residing in Virginia get a state tax deduction of up to $4,000 per account per year.
| Virginia 529 college savings plans | ||
|---|---|---|
| Program type | Advisor-sold | Direct-sold |
| Maximum fund amount | $500,000 | $500,000 |
| Minimum deposit amount | $250 ($1,000 for American Funds U.S. Government Money Market Fund) | $10 |
| Residency requirements | No | No |
| How to enroll | Contact an authorized financial professional | Fill out an online or paper application |
Virginia’s CollegeAmerica plan provides a way for families to save for education expenses, with federal and state tax benefits. Up to $500,000 total can be invested per student in any one or a combination of the state’s 529 plans. Accounts are sold through financial professionals, who then help people select investments and manage the account.
CollegeAmerica offers one age-based/enrollment-year investment option and 36 static/individual portfolios, with two underlying investments. Funds grow tax-free, and as long as they’re used for qualified expenses at eligible institutions, there’s no penalty for withdrawals. If you use the funds for non-qualified expenses, however, you’ll have to pay income tax and a penalty on the earnings portion of the funds.
While there are no enrollment or maintenance fees for the CollegeAmerica plan, each fund comes with its own fees. Asset-based fees range from 0.38% to 2.09%:
Some funds charge sales fees as well. It’s important to talk with your advisor to ensure you fully understand the fees you’ll be paying.
Invest529 is another option for families looking to save and invest money for education expenses with federal and state tax benefits. This program offers two age-based/enrollment-year investment options and 15 static/individual portfolios, with 13 underlying investments. Multiple portfolios can be opened for a beneficiary.
Once you choose the investments, they grow tax-free, and there’s no penalty if the funds are used for qualified expenses at an eligible institution, including two- and four-year colleges, as well as vocational, technical and graduate schools. Up to $10,000 a year per child can also be used for K-12 private or religious education.
Accounts can be opened online; you can also fill out a paper application, though this does carry a $50 fee. While there are no fees to open or maintain an Invest529 account in general, there are expense ratios and other fees involved, which vary depending on the funds in which you choose to invest. Expense ratios range from 0.09% to 0.62%.
| Best for… | Drawbacks | |
|---|---|---|
| CollegeAmerica |
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| Invest529 |
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While both of Virginia’s 529 plans offer the same state and federal tax benefits, CollegeAmerica funds typically come with higher fees. While asset-based fees for CollegeAmerica can climb beyond 2% plus sales charges depending on investments selected, the fees for Invest529 are more modest, with asset-based fees reaching no higher than 0.62%. The tradeoff for CollegeAmerica’s higher fees, however, is the assistance of a financial professional to help you set up your account, select investments and manage your account over time.
CollegeAmerica also provides more investment options than Invest529. It has 36 static/individual portfolio options, while Invest529 only has 15 such portfolios. However, Invest529 does offer two age-based/enrollment-year investment options, whereas CollegeAmerica only has one.
Can’t decide between the two? It’s no problem — Virginia taxpayers can contribute to multiple 529 programs for a single beneficiary, as long as the total contributions to all 529 plans doesn’t exceed $500,000.
| Maximum annual state deduction (Virginia state 529 accounts) | Singles: $4,000 per account Joint filers: $8,000 |
| Maximum annual state deduction (non-Virginia state 529 accounts) | Singles: $0 Joint filers: $0 |
| Requirements | Must be a state resident |
Virginia taxpayers who contribute to either of Virginia’s state 529 plans can claim a deduction of up to $4,000 per account yearly on their state taxes. Those age 70 and older can deduct the entire amount they contribute each year. However, Virginia taxpayers who contribute to 529 plans outside of Virginia don’t receive a state tax deduction.
Money within any 529 plan grows tax-free, and withdrawals aren’t taxed as long as they’re used for qualified expenses — such as tuition, books, fees and room and board — at an eligible institution, which includes schools both across the U.S. and around the world. If the funds are not used for qualified expenses, you’ll owe income tax plus a 10% federal tax penalty on the earnings portion of the money you withdraw.
Funds in Virginia’s 529 plans can be used at any eligible school in the United States or abroad. You receive the same state tax benefits no matter where the school is located, as long as you’re a Virginia taxpayer.
Yes, you can rollover your Virginia 529 to another state’s plan, though you can only do so once every 12 months. However, you should also note that if you’re still a Virginia taxpayer, you won’t be able to claim a state tax deduction on contributions to another state’s 529 plan.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.
Source: https://www.magnifymoney.com/blog/investing/virginia-529-plan/
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