529 Plan California ScholarShare: 10 Things to Know

10 Things to Know About California’s 529 College Savings Plan: ScholarShare

  1. ScholarShare is the name of California’s state-sponsored 529 plan.
  2. The ScholarShare 529 College Savings Plan was introduced in 1998.
  3. ScholarShare is open to out-of-state enrollments. Residents across the US can enroll, not just Californians.
  4. There is no minimum contribution required to get started. With $0 or no money you can open a ScholarShare plan today. (Many 529 plans require an opening deposit of $50 to $500 but California’s 529 plan is free to enroll.)
  5. $500,000 is the maximum contribution limit. Funds may be put into any/all 529 account balances for 1 single beneficiary until the total account balances reach $500,000.
  6. The ScholarShare 529 Plan is highly rated by T. Rowe price, with 4.5 of 5 stars.
  7. Funds in California’s 529 College Savings Plan see an annual rate of return of 7% — that’s over 1,000% more than the typical high-interest savings account at the bank which gives annual rate of return of 0.49%.
  8. If you put $1,000 in a ScholarShare plan and just let it sit, in 10 years you could have $1,967. That’s nearly doubling your money.
  9. If you put $1,000 in a ScholarShare plan every year, in 10 years you’d have $15,784. Assuming a 7% annual ROI. This means you would make $5,784 just by putting your money into a 529 plan.
  10. Pay $0 in taxes on growth or interested earned in your 529 plan if the funds go towards college and other qualifying education expenses.

Funds in a California or ScholarShare 529 plan are eligible to be linked to the free Upromise Rewards program. Upromise has helped families save over $1 Billion for college. Earn cash rebates and other cash rewards to save for college. Additionally, every month 5 Upromise members win a $529 scholarship for their family’s futures scholar.

Here are some common QA’s related to California 529 plans.

What is a 529 plan?

A 529 plan is a type of account that helps families to save for college and other higher education expenses. The goal is to get families to start saving today for their child’s education tomorrow.

Funds that you deposit or invest in a 529 plan grow like funds do in a 401(k) plan or other investment accounts. However, 529 plans are designed to save for higher education expenses instead of retirement or other long-term savings goals. Funds in a 529 plan can have a higher return on investment (accrue more interest) than funds you save in a traditional savings account at the bank.

While money in a typical bank account see less than 0.25% in yearly interest (less than 1%), funds in a 529 plan can gain 6% interest or more every year.

If you were able to put $1,000 into a ScholarShare plan today and not touch it, in 10 years you could potentially double your money. You could make nearly $1,000 in interest. In a traditional bank savings account, the ending figure would be close to $1,000. You’d probably only make $25 to $50 in interest.

The ability to get high returns on your savings in a 529 plan makes it an attractive option for families. It’s often the best path to saving for college against rising costs of tuition.

What are the tax benefits of having a 529 plan?

There are federal tax benefits that come with having a 529 plan,

When the beneficiary (student or child you are saving for) withdraws funds from their 529 plan, they do not have to pay taxes on any of the fund growth or interest as long as the funds go towards qualified expenses. This can included tuition for college, trade school or vocational school, graduate school, books, school fees, or room and board.

There is also a gift tax exclusion benefit that is helpful for grandparents and estate planning. There is no federal gift tax on contributions you make to a ScholarShare Plan for contributions of up to $16,000 a year for single filers or $32,000 a year for joint filers. Gifting can be accelerated with a lump gift of $80,000 for single filers or $160,000 for joint filers. And this amount can be gifted to as many beneficiaries as you like.

Talk to a qualified tax professional with any questions you have regarding the gift tax exclusion or lifetime gift tax exclusion, or any other questions on your state and federal taxes.

Is a 529 plan FDIC insured?

Some state 529 plans offer FDIC (Federal Deposit Insurance Corporation) products, but the ScholarShare plan does not. There is the potential for investment loss. Past performance does not guarantee future results.

Funds in a state 529 plan, like funds in a 401(k) plan or other investment portfolio, can lose money. It comes with inherent market risk. Neither the Plan nor the state of California nor any of its agencies or affiliate institutional services guarantee any performance results or principal invested. Speak with a qualified financial planner about the best investment strategy and savings options for you.

TIAA-CREF Tuition Financing Inc. has managed California’s 529 ScholarShare 529 Plan since November 2022. AT that time, they took over management from Fidelity.

Within the California ScholarShare 529 Plan, there are different investment options including age based portfolios, actively managed mutual funds, index mutual funds, and 14 static investment options. With an age based portfolio, you are targeting the year or years you anticipate your child will attend college.

Can a Resident Outside of California Have a California 529 Plan?

Yes, the ScholarShare 529 Plan is available to residents of any state. However, there are specific benefits for Californians or plan beneficiaries (students) who are residents of California.

The 2022 Matching Grant Program offers a dollar-for-dollar match on ScholarShare contributions up to $200 for new accounts. To qualify, the account owner (parent or guardian) must set up an automatic monthly contribution of at least $25. Parents or guardians must also be residents of California at the time of enrolling in ScholarShare, have a valid social security number or valid federal tax ID number, and have an adjusted gross annual household income of $75,000 or less.

There are not other state tax benefits (like state tax deductions for contributions you make to your ScholarShare plan account), however, 529 plan funds are exempted (not counted) when determining eligibility for other state benefits like Medi-Cal.

Where Can I Get More Information About ScholarShare?

For more information about saving for college or about the ScholarShare College Savings Plan, you can visit: www.scholarshare529.com or call 1-800-544-5248.

Information you can find or request a full Plan Description which includes investment objectives, charges, expenses, risks, and other information. Before making any investment, it is important to consider whether or not you or the beneficiary’s home state offers any specific state tax benefits such as financial aid, scholarships funds, and creditor protections. It’s always advisable to consult a tax professional for tax advice based on your own circumstances.

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