529 Plan Texas
Kim Finkle, MBA, Financial Advisor
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Texas is the second most populated state in the USA. A wave of younger people is moving to high-tech areas like Austin and Dallas-Fort Worth. To their luck, Texas has three great university systems - the University of Texas, Texas A&M, and Texas State University. And then they have community and vocational colleges around the state. The cost of living in Texas is lower than in California, New York, and Washington. But the cost of education is similar to these states. For a newly born child in Texas, it would cost $177,000 to attend a public university and $410,000 for a private.
To combat the high cost of college, Texas has sponsored a 529 savings plan called the Texas Colleges Savings Plan (TCSP). In this post, we will explore if TCSP is worth signing up for.
How Does The TCSP Plan Work?
The TCSB is an equity-based college saving plan that allows parents to select portfolio options based on their child's age, investment style, and risk tolerance. All contributions to the account grow on a tax-deferred basis.
Enrollment Requirement
A U.S. citizen or resident can open an account and designate a beneficiary. Anyone related or unrelated to the beneficiary can contribute to the account.
Educational Programs Funded By TCSP
- Apprenticeship - TCSP can be used to pay for books, equipment, fees, and supplies for a US Department of Labor approved on-the-job training with classroom instruction.
- Vocational School - TCSP can also be used to pay for a vocational school with a Federal School Code.
- Graduate and Undergraduate College - The plan can pay for qualified expenses including tuition, fees, housing, meal plans, books, supplies, computer technology, and equipment at any college or university in the U.S. as well as some international schools.
Benefits of TCSP
- Low Startup Cost - Parents can start a TCSP plan for as little as $25 and contribute up to $500,000 per beneficiary.
- Gift Contributions - Family and friends can also contribute to the plan. A married couple can take advantage of five years' worth of federal tax-free gifts at one time and contribute $150,000. Singles, divorced, and separated parents, the limit is $75,000 per person.
- Tax-Deferred - All earnings on the plan are tax-deferred.
- Scholarship Withdrawal - If the student receives a scholarship, the money equal to the scholarship amount can be withdrawn tax-free.
- Federal Tax Exemption - All qualified distributions for up to $10,000 per student per year are exempt from federal income tax.
- Supports in-state and out-of-state schools - You can use your savings for schools inside Arkansas or outside.
- Rollover - You can also roll over from another state's plan.
- Flexibility - Designate a new beneficiary if the current beneficiary doesn't want to attend college.
- Plan Limit - The plan limit is $500,000, much higher than most other states.
How to Enroll
- You can enroll by going to the TCSP website.
Criticism for TCSP Plan
- Since the plan mainly invests in the stock market, the plan beneficiary may not have enough funds due to the market fluctuations.
- Some distributions may be taxable.
- It gives an unfair advantage to the rich since they can save faster.
Co-parents and TCSP
TCSP can be a good option for divorced and separated parents residing in and out of the state. It can also be a good investment for those who want to send their child to a school in Texas. The high plan limit allows parents to save more than enough to fund their child's education anywhere in the US.
Since co-parents have separate finances and only one person can start a Texas College Savings plan, both parents can start one separately for the same child, and fund half of the balance. This way, if the child decides not to attend college or they need to withdraw funds for some other reason, or assign a different beneficiary for their portion, they can do so easily. Alternately, one parent can fund the entire plan and the other one can reimburse them for their half. Another option is that they can start 529 plans in different states and fund half each.
Comparison With Other 529 Plans
Feature |
Texas |
Arizona |
California |
Max Contribution |
$500,000 |
$529,000
|
$415,000 |
Full In-state Tuition |
Yes |
Yes |
Yes |
Full Out-of-state Tuition |
Yes |
Yes |
Yes |
State Tax Exemption |
No |
Yes |
Yes |
Federal Tax Exemption |
Yes |
Yes |
Yes |
Primary Contributors |
Anyone |
Anyone |
Anyone |
Student Loan Repayment Option |
Yes |
Yes |
Yes |
Plan Review |
|
Link |
Link |
Related:
What is a 529 College Savings Plan?
529 Plans By State
1. Alaska 529 Plan
2. Alabama 529 Plan
3. Arizona 529 Plan
4. Arkansas 529 Plan
5. California 529 Plan
6. Colorado 529 Plan
7. Connecticut 529 Plan
8. Delaware 529 Plan
9. Florida 529 Plan
10. Georgia 529 Plan
11. Hawaii 529 Plan
12. Idaho 529 Plan
13. Illinois 529 Plan
14. Indiana 529 Plan
15. Iowa 529 Plan
16. Kansas 529 Plan
17. Kentucky 529 Plan
18. Louisiana 529 Plan
19. Maine 529 Plan
20. Maryland 529 Plan
21. Massachusetts 529 Plan
22. Michigan 529 Plan
23. Minnesota 529 Plan
24. Mississippi 529 Plan
25. Missouri 529 Plan
26. Montana 529 Plan
27. Nebraska 529 Plan
28. Nevada 529 Plan
29. New Hampshire 529 Plan
30. New Jersey 529 Plan
31. New Mexico 529 Plan
32. New York 529 Plan
33. North Carolina 529 Plan
34. North Dakota 529 Plan
35. Ohio 529 Plan
36. Oklahoma 529 Plan
37. Oregon 529 Plan
38. Pennsylvania 529 Plan
39. Rhode Island 529 Plan
40. South Carolina 529 Plan
41. South Dakota 529 Plan
42. Tennessee 529 Plan
43. Texas 529 Plan
44. Utah 529 Plan
45. Vermont 529 Plan
46. Virginia 529 Plan
47. Washington 529 Plan
48. West Virginia 529 Plan
49. Wisconsin 529 Plan
50. Wyoming 529 Plan
51. DC 529 Plan
Warning:
This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.