The 529 Plan Texas Guide: All You Need to Know

Live in Texas? Want to know about the 529 Plan that Texas has to offer? Search no further than here. It’s nuts and bolts time!

Dreaming and aiming for something bigger in life does not always bestow success; it always demands smart planning and prior actions. If you are dreaming about getting your loved one enrolled for higher education, then it’s time to start savings now. For the ease and convenience of the parents to save for their children a better future, the United States initiated the 529 Plan. In this article, as stated before, we will discuss all 529 plans Texas offers.

What Is A 529 Plan?

I know we have been through this before, but refreshers are never a bad thing. A 529 plan is basically a tax-advantaged saving plan to save for the educational expenses. The legal term used for the 529 plan is the Qualified Tuition plan, and all the 50 states and districts are authorized to sponsor it.

Section 529 of the Internal Revenue Code authorizes the state agencies, organizations, and institutions to sponsor the plan and initiate the saving process.

So are you planning on exploring how to open a 529 plan for the state of Texas?

Then here is the detailed guide as to how you can do so.

Step 1: Choose the Plan

There are basically two types of 529 plan Texas offers including:

  1. Texas College saving plan
  2. Lonestar 529 plan

You can choose the 529 plan according to the cost involved and the overall performance of the plan. But here we would like to add that the state of Texas offers the lowest cost plan to ease the saving as compared to any other state.

Step 2: Determine Account Type for Your 529 Plan

A 529 plan involves two types of accounts including:

Individual Account

Where the owner of the account is one of the biological parents, and the child is the beneficiary of the account. In case of a parent being divorced, the account holder should be the one who gets the custody of the child. The account holder is the one who will file the FREE APPLICATION FOR FEDERAL STUDENT AID (FAFSA). The main feature of the individual account is that anyone can contribute to the account. For more information on the FAFSA, check out our post here: FAFA’s Illusion and why should it be completed.

Custodial Account

While on the other hand, if the money for funding the 529 plan comes from brokerage account such as an UGMA or UTMA or any of the custodial banks the account will be a custodial account. In these scenarios, the child will be the account holder and beneficiary, and the custodian will handle the account till it attains the majority.

It up to you as to which account you prefer, but usually, the account owned by the students’ parents gets more favor from financial aids.

Step 3: Application For 529 Plan

Once you decide as to which plan and account to go with, the next step is to apply for the 529 plan. Go to the 529 plan website and download the application form. The form will require the following information:

  • Account holder name
  • Beneficiary name
  • Personal information including mail address, contact number, Date of birth, email IDs, Taxpayer identification number, and social security number.
  • The application also demands the successor account holder’s information in case the primary account holder dies.

Choose the initial investment portfolio to go on with the application.

Step 4: Funding Of 529 Plan

You can deposit the money into a 529 plan either through a check or a direct online transaction. You can also set an automatic contribution to the 529 plan from your bank account after a specific period, and you can set the period and amount to be contributed. But for the automatic account transfer, you will be required to submit a bank routing number, your account number, and pre-printed deposit slip or check.

In case of contribution from the employer, the 529 plan allows set up for automatic contribution through payroll.

What Should Be The Minimum Deposit Limit?

The initial deposit should not be less than $25. Moreover, all the subsequent transactions from the account should be a minimum of $25. In the case of automatic payroll, the minimum contribution should be $15.

As far as the annual contributions are concerned, there is no limit, and you can contribute up to $150,00 per year individually. But the 529 plan does observe a cumulative limit of $370,000. Once the 529 plan reaches the limit, no further contributions will be accepted. However, the plan keeps on appreciating the interest and value.

Step 5: Investment Choice for Your 529 Plan

After the opening of the 529 plan account and initial depositing of funds next comes the stage of choosing from different investment opportunities, the suitable one for you.

Age-based portfolios

First, we have the age-based portfolios, which take off with a rather aggressive combination of investment opportunities, including stocks, and then shift to more stable investment options. If you opt for Texas College saving plan, then you get 2 age-based investment options. Either you can invest in the actively managed portfolios or passive index funds. In Texas, you can also opt for one of seven static portfolios, including a money market portfolio, four multi-fund portfolios, and two single-fund portfolios.

Want to change your investment strategy? Well, the 529 plan gives you the freedom to change your investment strategy twice in a single year.

Benefits of Texas 529 Plan

As the Texas state in one of the nine states where there is no state-regulated personal income tax. So apart from any kind of income tax benefits, the 529 plan offers all kinds of federal and state tax benefits.

  • You can get your hands on the annual gift tax exclusion on the contribution up to $15,000 or $30,000 for a couple.
  • If the contributions are more than the annual gift tax exclusion, then they become eligible for 5-year gift tax averaging. That allows the contribution up to $75,000 and $150,000 in case the couple is contributing jointly, without incurring gift taxes.
  • Along with this, all the earning gathers on a tax-deferred basis.
  • All the distributions for K-12 or higher education are entirely tax-exempt.

So there we have it. The ins and outs and nuts and bolts about the Texas 529 College Savings Plan.

What are your thoughts about this plan? We would love to hear what you have to say.

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