Even though the cost of a college education has risen dramatically it still proves to be a valuable investment. Aside from the financial boost, a college education opens many doors to a fulfilling, lifelong career. To fund a college education, the federally established 529 Plan is the most popular vehicle. Unfortunately, many who have taken advantage of this program have done so through their broker. A better option, especially for those residents of Louisiana, is with the state program of residency. The START Plan provides two primary advantages Louisiana residents cannot find anywhere else: State Income Tax Deductions and Earnings Enhancements.
State Tax Deductions
Of the two advantages, the state income tax deduction provides the break to you, the contributor. If you are single, you are allowed to deduct up to $2,400 of your 529 Plan contributions per beneficiary, per year. If you file jointly, you can deduct up to $4,800 per beneficiary, per year. For example, Wilma and Fred collectively make $100,000 per year and have two sons and one daughter. If Wilma and Fred made an annual contribution of $4,800 for each child’s plan, that money is tax deductible.
With every deposit you make towards your 529 plan, START will match those contributions to a certain percent based on your income (listed below). How about that? Free Money!
Here’s how it works: If your reported AGI is $50,000 and you contribute $1,000 annually to a 529 Plan, START will additionally contribute $90 ($1,000 contribution X 9% Earnings Enhancements) for a total contribution of $1,090.
As you can see, the START Program provides a double-sided benefit by essentially giving free money with the earnings enhancements and reducing your state income taxes. Additionally, START charges no management fees and uses a wide array of high quality, low cost Vanguard mutual funds that range between 0% and .30% in expenses (as of 3/31/2016).
If you are concerned about the safety of establishing a 529 Plan with the state, considering Louisiana’s “recent” fiscal issues, you should know that contributions to 529 plans by Louisiana citizens are protected in a trust. No matter how much debt the state has, the contributions or principal amount can only be accessed by the listed beneficiary. The only benefit that could be changed in the future is the Earnings Enhancements feature, but this has yet to be discussed or threatened. For now, the Earnings Enhancements feature is still in full effect.
When taking everything into consideration, it is difficult to find a valid reason for keeping your 529 plan anywhere else. One might conclude the program being too good to be true, but the program was designed to encourage saving for college using incentives making education affordable and accessible to all.
If you would like to find out more, please visit the START Program website (http://www.startsaving.la.gov) or give us a call if you have any questions. Please make sure to review the information on the website in full for qualification and restrictions of benefits and features.