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Facts About Pennsylvania's 529 Plans

By    |   Thursday, 21 May 2015 02:39 PM

The 529 plans are a great method for making sure that a student can afford to attend college despite the ever rising costs of higher education. With these costs rising to unprecedented levels, it is often smart to consider plans like this to allow a child to have the benefit of a higher education that could otherwise be cost prohibitive.

In Pennsylvania, parents also have the privilege of being one of only five states to get a full state-income tax break for contributing. Here are six facts to know about the Pennsylvania 529 plan before making your first donation:

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1. The two main plans offered in Pennsylvania are the PA 529 Investment Plan and the PA 529 Guaranteed Savings Plan.
The main difference between the two is that the PA 529 Guaranteed Savings plan is based on tuition inflation without worrying about the stock market movement. The PA 529 Investment Plan features low fees and investment options through Vanguard that can provide higher results but more fluctuations in the short term.

2. The PA 529 plan offers three age-based investment options, all of which are managed based on the age of the student and the risk tolerance that the investor wants to take on. Also included in the PA 529 plan are 10 other static investment options. Vanguard is the financial service company that deals with the Pennsylvania 529 plan.

3. Pennsylvania is one of only five states that offer a state income-tax break to individuals who contribute to a 529 plan. The other states that offer this tax break are Arizona, Kansas, Maine, and Missouri. This tax break is whether a person uses the official PA 529 plan or another 529 plan offered.

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4. The official PA 529 plan does not count when determining eligibility for student financial aid when the student signs up for college. Other 529 plans in Pennsylvania do not get this same benefit. Also, for federal financial aid, only 6 percent of parents’ assets count and federal financial aid considers 529 plans as parental assets.

5. The Guaranteed Savings Plan is a prepaid tuition plan, but many states will not absolutely guarantee a prepaid 529 plan. This means that, if the tuition growth outpaces a person’s investments, those states will not guarantee that they will cover the child’s education in those cases. One of the states that does not offer a guarantee is Pennsylvania – despite the promotions promising that they could be risk-free, the small print offers the Guaranteed Savings Plan an out in some cases.

6. Both the contributions to Pennsylvania and to the non-Pennsylvania 529 plans are eligible for gift-tax exclusions
. The total amount as of 2014 is $14,000 per beneficiary annually. Spouses can claim up to $28,000 per beneficiary if they file a joint return. Not eligible for the gift deduction are rollovers from another 529 plan.

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The 529 plans are a great method for making sure that a student can afford to attend college despite the ever rising costs of higher education.
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2015-39-21
Thursday, 21 May 2015 02:39 PM
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