For many parents, saving for a child's higher education expenses can be one of the most overwhelming financial stressors they ever encounter. With tuition costs constantly on the rise and the need for a college degree more prevalent than ever before, many families are turning to state sponsored 529 plans for college savings made simple.
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Introduced in 2012, Tennessee's 529 plan, named
TNStars College Savings 529 Program,is administered by the Tennessee Treasury Department and has received a four and half cap rating (out of a possible five)
by Savingforcollege.com. Its predecessor, the BEST Prepaid College Tuition Plan, is no longer open for new enrollment.
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With no state residency requirements and a minimum opening contribution of only $25 (as of 2015), the program is fairly easy to start. TNStars is a direct-sold plan, meaning individual investors do not need a financial advisor to participate and enrollment can be completed online including the funding of the account. Like most other 529 programs, the earnings through this program are not subject to federal income tax as long as the money is used for qualified college expenses. This is one of the primary benefits of 529 plans in general.
Tennessee's 529 plan is offering some pretty enticing incentives for those looking to open new accounts, too. For state residents, the program is offering to add $100 to accounts where a balance is rolled over from a different college savings account, including those from the BEST Prepaid College Tuition Plan. Some matching incentives are also a part of the package. For instance, on current offer is a $100 match for an initial deposit of $100 or more. For investors willing to sign up for automatic contributions from their bank account each month, the 529 plan will add $50 to the account.
Perhaps not surprisingly, there are some fees to consider as well. There is no type of enrollment fee, but the plan does charge participants what it calls an annual asset based fee. This fee is currently 35 basis points, meaning it would cost an investor $0.35 per $100 in their account, according to the plan website. For residents of Tennessee, an additional thought to consider is that since Tennessee has no state income tax, there is less incentive to go with the 529 plan of their home state. In other words, they can be a bit more selective about which state's plan to ultimately choose.
Overall, the TNStars 529 plan is considered an improvement upon the previous Tennessee 529 plan which was widely criticized for being too expensive in terms of fees,
according to an article in Slate. Additionally, the new program offers and age-based option and other individual investment options not previously available including an interest bearing account option with First Tennessee Bank,
according to Savingforcollege.com.
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