What is a 529 plan?
A 529 plan is an educational savings program to make it easier to save for a designated beneficiary like a child or grandchild. These are interest bearing accounts and the specifics vary by state. Typically, tax benefits such as income tax credits as well as tax-free depositing are made possible by these plans. Assets in these accounts are considered parent income rather than student income despite the fact that the savings must be used for the student beneficiary's educational expenses. This is a huge plus when in comes to financial aid, especially in older "non traditional" students who may be able to exclude parental earnings from their applications. Beyond that, schools assume that students may allocate 20% of their income towards paying for education while the assumption is that parents have a lower assumed contribution rate of 5.64%.
Vermont Higher Education Investment Plan, or VHEIP, is unparalleled in the state because the earnings allocated to these accounts are not subject to federal OR state income taxes unless you make a non-qualified withdrawal. There are other benefits as well. A 10% credit of the first $2,500.00 deposited in a VHEIP account per beneficiary can be applied in a single tax year, or a credit of 10% of the first $5,000.00 deposited by a couple filing jointly. That means a tax credit of $250.00 for individuals and $500.00 for joint filers per year. In some cases, contributions may decrease the taxable income of a contributor. Check with your accountant if you are unsure how this affects your personal situation.
There are various ways that you may contribute to this account. One time deposits have a minimum of $25.00. For automatic recurring deposits, the minimum fee for having a contribution deducted from a paycheck is $15 per pay period regardless of whether it is weekly, biweekly, or salaried. There are no enrollment fees, and they accept rollovers from 529 accounts from other states if you have relocated. There are account management fees, but they are low and varied (Between .05% and .39%) based on what sort of investment account you choose as well as the amount you are able to contribute.
What are the limitations on a VHEIP account?
An account may hold anywhere from $25.00 to $352,800.00. If an account reaches the maximum total amount, it can still accrue interest but will not accept any additional deposits. However, an account holder may withdraw money at any time for reasons other than education if they are willing to pay a tax on the withdrawn amount.
Any person with a social security number can open a VHEIP account, regardless of income. Some schools even accept 529 plan money for adult continuing education. Funds can be used to purchase school supplies as well, including technology such as computers and software for a student. The savings can be used for schools both in and out of state, both public and private, as well as at some schools internationally. This includes colleges, universities, trade schools, and more. To determine whether a school is eligible, speak to us or use this tool provided by FAFSA.
Another great feature of an account through VHEIP is that anyone can contribute through a gift. For large families with few children, pooling resources in a trustworthy and secure way couldn't be easier.
What options do I have for investing?
VHEIP offers six different portfolios to suit the needs of a diverse population: The Managed Allocation Portfolio, Diversified Equity Portfolio, Equity Index Portfolio, Balanced Portfolio, Fixed Income Portfolio, or Treasury Obligations Portfolio. Within these categories, there is even more variance depending on what age the beneficiary is and the level of contribution. For help navigating through these choices, please feel free to contact us.
What if my child chooses not to go to college?
There are many respectable reasons a person may choose not to follow the path of higher education. If this is the case with your beneficiary, you can choose to withdraw that money as a non-qualified withdrawal, or you may leave it in the account in case a future descendant chooses to use it for its intended purpose.
There are countless resources for college planning - some trustworthy and some predatory. Please use trusted sources, non profits, and direct information when choosing your strategy. We would love to discuss this with you!