Georgia established a 529 College Savings Plan on March 23, 2001. The Path2College 529 Plan is administered by the Board of Directors of the Georgia Higher Education Savings Plan. Parents, guardians and others can establish this type of savings account for their children or other beneficiaries. This type of account also can be opened for your own benefit.
Contributions to Georgia’s 529 Plan grow tax free until withdrawn from the account. The withdrawals are state and federally tax free, provided they are used for qualified higher education expenses. Qualified higher education expenses are defined as tuition, room and board, fees, books, supplies and equipment necessary for attendance at an educational institution. Room and board expenses can only be treated as qualified expenses if they are incurred during an academic period the beneficiary is enrolled or accepted for enrollment in a degree, certificate or other program that leads to a recognized educational credential. Unqualified withdrawals are subject to Georgia state income tax, Federal income tax and a 10% penalty. The contributions to the 529 Plan will be professionally managed by TIAA-CREF. The following are seven investment options:
Managed Allocation Option
This is a mix of bonds, cash, equities and real estate. When the beneficiary is younger, the assets are invested more aggressively. As the beneficiary nears college age, the allocation of the assets will move toward fixed investments (age-based approach).
Aggressive Managed Allocation Option
Follows the same age-based approached as the managed allocation option, but allocates a higher percentage to equity investments. Younger beneficiaries have a higher and longer exposure to equities than under the Managed Allocation Option.
100% Equity Option
Fully invested in a blend of domestic mutual funds that invest in equities.
Fixed Income Option
A mix among various types of fixed investments, such as bonds, inflation-linked bonds and high-yield bonds.
Balanced Fund Option
Invests equally between equity and bond funds. This is offered by TIAA-CREF funds.
Guaranteed Option
Guarantees principal and a fixed minimum return. As of October 1, 2009, the minimum rate is 2.75%, which is guaranteed until September 30, 2010.
Money Market Option
This option seeks to provide safety of principal, and can offer a short term rate of return.
There is no enrollment fee or sales charge for the mutual funds that back the investment options. There is an all-inclusive annual management fee of account assets. There is no fee for the guaranteed option.
Georgia residents can deduct up to $2,000 per tax year per beneficiary from their state taxes regardless of income. In addition, the beneficiary does not have to be a dependent of the contributor. Taxpayers have until the April tax filing due date to make contributions for the previous year to receive the state tax deduction.
There is an overall maximum account balance limit of $235,000 for all accounts opened for a beneficiary. There is a one-year holding period for the investments in this plan. Minimum contributions are $25 or $15 per pay period via payroll deduction.
If your child decides not to attend college, generally, you can receive a refund of your contributions without tax implications, assuming you did not receive a state tax deduction for the contributions. If you received the $2,000 tax deduction for the contribution, a ratio is used to determine the taxable portion of the contribution that is withdrawn. The earnings portion for nonqualified withdrawals is subject to state income tax, federal income tax, and a 10% penalty. There are exceptions though, and they are as follows:
If the beneficiary dies or becomes disabled, you can withdraw contributions and earnings without a penalty, although taxes will be due on the earnings portion of the withdrawal.
You can change the beneficiary on the account to another family member.
If the beneficiary receives a scholarship, you can withdraw contributions and earnings up to the scholarship amount without a penalty. Taxes will be due on the earnings portion of the withdrawal.
To obtain additional information on Georgia’s Higher Education Savings Plan visit http://www.gacollegesavings.com/, or call 1-877-424-4377. For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
