Opening a 529 College Savings Plan is one of the best things you can do for your child. As you make contributions every month or every year, you’ll see your child’s savings for higher education grow.
The perks are two-fold. They won’t have to worry as much about burdensome student loans and financial aid applications when they’re only eighteen; and you may also get some useful tax benefits you didn’t even know about.
Understanding what the tax-advantaged Virginia529 plan entails may seem complicated, but it doesn’t have to be. We have broken down all the information you need to know about this program. In this article, we will go over who can open a 529 plan, how much you can save, and how you can pay less in state income taxes because of it.
It’s never to early to start saving, or talking to your children about saving, for college.
What Is the Virginia 529 Plan?
The state of Virginia offers families a better way to save for higher education: the Virginia 529 plan. This savings program is updated every year by eleven finance experts and investment managers.
Unlike other savings plans, the Virginia 529 plan offers great tax benefits. Moreover, it boasts diverse portfolios that make investing in your child’s future all the more accessible. This way, affording tuition and living expenses becomes much, much easier.
How Does the Virginia 529 Plan Work?
Virginia 529 College Savings Plans are easy to understand: make a deposit, let your money work hard for you, then cash out your savings when your child pursues higher education. Let’s break this down.
When you open a Virginia 529 plan, you get to choose what investment options you want to try. You’ll have a variety of investment portfolios to pick from, full of hand-picked mutual funds, bonds, titles, and more.
Then, every time you make a contribution—no matter how small—every cent gets invested.
After a few years, your savings balance will be higher than if you had simply put all that money into a regular savings account. Virginia’s 529 plan combines smart investment moves, low fees, and tax benefits (more on that in a bit) to make tuition and other education expenses more affordable for the average family.
Who Can Open a 529 Plan?
This plan is not just for Virginia residents. Rather, it’s open to all U.S. citizens and legal residents of any state looking to save for education expenses. You don’t even have to be the beneficiary. As long as you are over 18 years of age, you can open a Virginia529 savings plan.
What Can You Spend 529 Funds On?
Virginia 529 funds have to be spent on education expenses. That means you can pay for higher education and K-12 at any institution (in or out of Virginia) with those funds. Use them to pay for tuition, room and board, textbooks, tech for school, application fees, and more.
Who Can Make Contributions?
Anyone who knows the account’s Gift ID can contribute. Thus, parents, grandparents, family, and friends can all pitch in to give a meaningful gift. Moreover, since contributions can be made directly using the Virginia 529 website, setting your child up for success is a breeze.
However, we need to point out that not everyone who contributes can get the sweet tax benefits that come with this savings program. We’ll go over that further down in the article.
Two Ways to Save: The Two 529 Plans Explained
There are two routes you can go down when you open a Virginia 529 plan. Since each program offers different investment options, you should read up on both to know which one is right for you.
Invest529 is a plan specifically created to help parents save for higher education expenses. It takes advantage of the many years it will still take for your child to enroll in a university. Thus, its portfolio options buys you time to boost your savings.
The best thing about Invest 529 is how accessible and flexible it is. You can choose to invest in mutual funds, index funds, or target enrollment portfolios.
The CollegeAmerica® option is geared toward parents who want to be in full control of the 529’s investment options. Together with third-party advisors, and with the help of American Funds (one of the oldest mutual funds companies in the country), you can fully customize your portfolio.
The main advantage of this plan is that it lets you take on higher risks to quickly save more money. If you want to spend your Virginia 529 funds on K-12 education expenses or need to save for higher education in a short period of time, this may be the way to go.
How You Can Grow Your Savings With a VA 529 Plan
There is no trick to growing your Virginia529 savings, only smart investments. When you pick your investment options wisely, you can see your balance grow without you needing to do anything in particular.
Target-enrollment portfolios are particularly interesting. They take an age-based approach to help you manage your funds safely but still in a lucrative way. When your child is still young, the Virginia 529 plan will invest in higher-risk, higher-yield options (for instance, in mutual funds). As their college enrollment year creeps up, the Virginia529 plan automatically shifts to lower-risk, lower-yield options (for example, bonds) so you don’t stand to lose a thing.
Of course, you don’t need to follow the target enrollment portfolios. Especially if you choose the American Funds CollegeAmerica® path, you can customize your portfolio options. Just make sure to bet on diverse investment options and to get an expert second opinion before making riskier investments.
Can You Lose Money in a Virginia529?
Yes, you can lose money in a Virginia 529 plan. If the equities (i.e. mutual funds or stocks) you own devalue, you stand to lose money from the deal. That is how investing works.
However, there are investment options out there for the spooked investors. The Virginia 529 Savings Plan offers an FDIC-insured portfolio, meaning you won’t lose the money you invest. Sure, your savings program won’t garner as much capital as if you had invested in a high-risk strategy, but you won’t make a dent in your finances if the market takes a turn for the worse.
5 Advantages of a Virginia 529 College Savings Plan
There is no better way to get money for college than a Virginia 529 Savings Account. Here are the five reasons why you should sign up for this plan.
1. Tax-Free Growth
The money you earn from your investments is shielded from state and federal tax. Thus, you get to keep more of it. This applies to every Virginia 529 plan—from customized diverse investment options and FDIC-insured assets to age-based investment portfolios.
It may not seem like much, but the savings add up year after year. If you contribute $200 every month for 18 years you will have $14,325 more than if you had put that money into a regular taxable savings account.
2. Low Fees
The Virginia 529 plans (and the Invest529 plan in specific) cost very little to maintain. This translates to your child keeping more of their 529 savings in the end.
All the fees are clearly laid out on the program’s website, including the asset-based and expense ratio for each investment portfolio. Make sure to read up on the fees you will have to pay before committing to a particular investment option.
3. Tax-Free Withdrawals
You don’t have to pay federal tax when spending your 529 savings funds on education expenses. No matter if you’ve used the age-based portfolio or a customizable one, your capital gains are not considered taxable income.
4. Good Gift Tax Treatment
Contributions of up to $15,000 for single filers (or $30,000 for joint filers) are exempt from the federal gift tax. That exclusion applies per beneficiary for Virginia residents and all other U.S. residents.
Alternatively, you could also spread out a generous gift of up to $75,000 (single filer) or $150,000 (joint filer) over five years instead of one year to still avoid the gift tax, thanks to a special provision unique to the Virginia 529 program. This is especially useful if you’ve come across a financial windfall.
As always, you should consult your tax expert to better understand how the gift tax exclusion might apply to you.
5. Deductible Contributions
Lastly, you will probably also be happy to learn that your Virginia 529 contributions may be deducted from your state income tax statements. If this tax break applies to you, your investments will not only help out your child but also your wallet.
How Do Virginia 529 State Tax Deductions Work?
You can’t deduct 529 contributions from your federal tax bill, but you can lower how much state income tax you have to pay by deducting Virginia 529 contributions. If you’re in luck, you could even get to a lower tax bracket. You can see why this is one of the most attractive tax benefits of a Virginia 529 college savings program.
Virginia residents can deduct up to $4,000 per year, per beneficiary. This only applies to the Virginia 529 account owners and their spouses and it has infinite unlimited carryforward to other tax years.
For example, if a Virginia 529 account owner contributes $6,000 in 2019, they can deduct $4,000 in 2019 and the remaining $2,000 in 2020. This way, they can lower how much they pay in state income tax in both years.
Virginia Taxpayers Over 70
Virginia account owners who are over the age of 70 can deduct all the contributions they make to a Virginia 529 college savings plan. Since there is no total deduction cap per beneficiary per year, they can lower their annual income tax payments.
Taxpayers of Tax-Parity States
Taxpayers of seven other states can also claim state income tax deductions.
- Arizona: Limit of $2,000 per year for single filers and $4,000 per year for joint filers. Valid for anyone contributing to the account.
- Arkansas: Limit of $3,000 per year for single filers and $6,000 per year for joint filers. Valid for anyone contributing to the account.
- Kansas: Limit of $3,000 per year, per beneficiary for single filers and $6,000 per year, per beneficiary for joint filers. Valid for anyone contributing to 529 college savings plans
- Minnesota: Limit of $1,500 per year for single filers and $3,000 per year for joint filers. Valid for anyone contributing to the account.
- Missouri: Limit of $8,000 per year for single filers and $16,000 per year for joint filers. Only valid for the 529 account owner and their spouse.
- Montana: Limit of $3,000 per year for single filers and $6,000 per year for joint filers. Only valid for the 529 account owner.
- Pennsylvania: Limit of $15,000 per year, per beneficiary for single filers and $30,000 per year, per beneficiary for joint filers. Valid for anyone contributing to the 529 account.
Taxpayers of Other States
Taxpayers in all other states cannot deduct any contributions they made to Virginia 529 plans. Their state income tax will remain the same.
Frequently Asked Questions About Virginia 529 Plans
Do you still have questions about how the Virginia 529 plan works? We’ve got you covered.
How Much Money Do I Have to Put Into a VA 529 Account?
You can open a Virginia 529 College Savings Plan with as little as $10.
How Many 529 College Saving Plans Can I Have?
Technically, you can open as many 529 Savings Accounts for the same child as you want. You can combine both in-state and out-of-state accounts to get breaks on your state income tax and access to more lucrative portfolios.
What Happens If You Don’t Go to College?
If you use your Virginia 529 funds for something other than K-12 or higher education expenses you will get a penalty and a federal tax levy on your withdrawals.
Will a Virginia 529 Plan Impact Financial Aid?
Virginia 529 plans won’t have a major impact your financial aid applications. You may still apply for student loans.
Is It Worth Getting a Virginia 529 Plan?
For most people, getting a Virginia 529 plan is a good idea. It charges low fees and gives you access to exclusive FDIC-insured investment options. It also allows you to use third-party advisors for more savvy investment options. Plus, it’s the only way for Virginia residents to be eligible for state tax deductions.
Taxpayers of other states should also look at their own state’s 529 college savings plans. This may be a good way of boosting their child’s education savings and claim tax deductions at the same time.
All that said, make sure to talk to your tax advisor to know how this information could impact your finances.
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All State 529 Plans by State
- Alabama 529 Plan
- Alaska 529 Plan
- Arizona 529 Plan
- Arkansas 529 Plan
- California 529 Plan
- Colorado 529 Plan
- Connecticut 529 Plan
- Delaware 529 Plan
- Florida 529 Plan
- Georgia 529 Plan
- Hawaii 529 Plan
- Idaho 529 Plan
- Illinois 529 Plan
- Indiana 529 Plan
- Iowa 529 Plan
- Kansas 529 Plan
- Kentucky 529 Plan
- Louisiana 529 Plan
- Maine 529 Plan
- Maryland 529 Plan
- Massachusetts 529 Plan
- Michigan 529 Plan
- Minnesota 529 Plan
- Mississippi 529 Plan
- Missouri 529 Plan
- Montana 529 Plan
- Nebraska 529 Plan
- Nevada 529 Plan
- New Hampshire 529 Plan
- New Jersey 529 Plan
- New Mexico 529 Plan
- New York 529 Plan
- North Carolina 529 Plan
- North Dakota 529 Plan
- Ohio 529 Plan
- Oklahoma 529 Plan
- Oregon 529 Plan
- Pennsylvania 529 Plan
- Rhode Island 529 Plan
- South Carolina 529 Plan
- South Dakota 529 Plan
- Tennessee 529 Plan
- Texas 529 Plan
- Utah 529 Plan
- Vermont 529 Plan
- Virginia 529 Plan
- Washington DC 529 Plan
- West Virginia 529 Plan
- Wisconsin 529 Plan
- Private College 529 Plan