Get all the information you need on Arkansas' 529 plans, including performance, tax benefits, and investment options.
Across the United States, the cost of attending college continues to rise, so much so that even the more affordable public schools now carry price tags in the tens of thousands of dollars per year. To cover this exorbitant expense, families often turn to powerful financial tools like the ever-popular 529 plan. These accounts are available in every state, and although the basic traits of 529 plans stay the same wherever you go, the details of each state’s program vary in a number of ways. If you live in Arkansas and would like to explore your state’s 529 plans – or if you live somewhere else and are interested in what The Natural State has to offer – keep reading as we discuss the inner workings of Arkansas’s 529 plans.
In the mid-1990s, Congress amended the Internal Revenue Code to add Section 529, which set up the tax rules surrounding a new type of investment account designed to help make college more affordable for families: the 529 plan. These accounts are unique among investment plans because the gains on contributions are exempt from federal (and often state) income tax, meaning that every dollar you earn you get to keep and spend on qualified education expenses.
Both of Arkansas’s 529 plans are of the type known as education savings plans, one of three varieties (the other two being prepaid tuition plans and ABLE accounts). Education savings plans are the most popular kind of 529 plan because they are the most widely available, and they’re more flexible than a prepaid tuition plan.
Instead of being limited to covering tuition and mandatory fees, one of Arkansas’s 529 plans can also be used to cover room and board, books, computers, and other essential costs associated with higher education. In addition, these 529 plans can be put toward private elementary or secondary education, trade schools, and apprenticeships, giving families a wide variety of options when planning for their child’s future.
However, these benefits come with a caveat: With few exceptions, using the funds in a 529 plan for any purpose other than one prescribed by Section 529 will mean getting hit with income tax on earnings as well as a 10% penalty. Although you can access the money in your account at any time, doing so to cover a non-qualified expense can be costly.
Below we’ll take a closer look at how the two 529 plans in Arkansas – the GIFT529 College Investing Plan and iShares 529 Plan – work and what distinguished one from the other.
The first of Arkansas’s 529 plans is the GIFT529 Plan, also called the GIFT College Investing Plan. Unlike the iShares 529 plan, which we’ll cover below, the GIFT529 Plan is a direct-sold plan, meaning that you open it through the state itself rather than through a financial advisor.
The benefit of a direct-sold plan is that it carries lower fees than an advisor-sold plan, which can save you significant amounts of money in the long run. For contrast, the highest amount you could have to pay in fees for a GIFT529 Plan is 0.53% of the plan’s assets, while the highest amount for an iShares plan is 1.44%. The trade-off here is that the account owner of a GIFT529 Plan won’t have access to the same financial planning services they’d get with an advisor-sold program.
Still, it’s worth noting that investments made through a GIFT529 Plan are still managed by financial professionals – namely, those at The Vanguard Group and Ascensus College Savings – so you don’t have to worry about your funds being left unattended.
As mentioned above, Arkansas’s iShares 529 Plan is an advisor-sold plan, meaning that it carries higher costs but also comes with greater financial support from a qualified advisor; in this case, Ascensus Broker Dealer Services, Inc., would be managing your investments.
The iShares Plan is also distinct in that its investments are entirely made in exchange-traded funds (ETFs), rather than a mix of different kinds of funds. Because ETFs are passively managed, they tend to come with lower account management fees than actively managed funds, and the lowest level of fees with the iShares Plan (which is determined by what kinds of assets you invest in) is only 0.35%.
Virtually every 529 plan across the country offers two specific types of investments – age-based portfolios and static portfolios – and Arkansas’s plans are no exception. These two classes of investments are designed to cater to various levels of comfort with investing as well as provide distinct strategies for how funds should be invested from year to year.
Age-based portfolios are largely automated investment options meant to maximize gains early in a beneficiary’s life, when there’s still plenty of time to make up losses, then transition to a more conservative approach as time goes by to protect those gains as the start of college draws nearer. This option is great for account owners who haven’t done much investing before, and although the level of risk changes automatically, many 529 plans – including those in Arkansas – do offer a degree of control by providing portfolios with different overall levels of risk.
Static portfolios are intended for more hands-on investing. Many plans – especially advisor-sold plans like Arkansas’s iShares option – offer a wider array of static investments for account owners to choose from, which allows for greater customization of investments and a more complex portfolio. These investments remain the same over time unless the account owner specifies a change, which is where they get the name “static.”
Whichever type of portfolio you choose, know that your decision is not irrevocable. Each year, an account owner gets two chances to change their investments, so you are free to reallocate funds if necessary. This limit is consistent across all 529 plans, but there’s a simple workaround that can allow you to exceed the limit with little added effort: Simply change the beneficiary at the same time that you change the investment, and the reallocation won’t count toward your two-per-year limit. It’s also worth noting that you can change how future contributions are invested at any time and as often as you like.
Another way that Arkansas’s GIFT529 and iShares plans differ is in the investments they provide. While both plans come with age-based and static investment options, the funds and portfolios available within those categories are not the same.
The age-based options under the GIFT529 Plan are split into three categories of risk: aggressive, conservative, and moderate. Within those umbrellas, investments are made based on the age of the beneficiary, with each portfolio divided into nine age groups: 0-4, 5-6, 7-8, 9-10, 11-12, 13-14, 15-16, 17-18, and 19 and up. As they progress through the groups, investments shift toward a more conservative, protective strategy in an effort to keep any gains intact.
Account owners with this Arkansas 529 plan can choose from one of six static options to invest in, each with its own potential for gains and level of risk. These investment options comprise the following:
• The Aggressive Growth Portfolio, which splits investments between the Vanguard Total Stock Market Index Fund and Total International Stock Index Fund
• The Growth Portfolio, which prioritizes the Vanguard Total Stock Market Index Fund but includes three other funds as well
• The Moderate Growth Portfolio, which balances capital appreciation and current income
• The Conservative Growth Portfolio, which prioritizes the Vanguard Total Bond Market II Index Fund
• The Income Portfolio, which includes a mix of four funds
• The Interest Accumulation Portfolio, which invests in the Vanguard Federal Money Market Fund
The GIFT529 Plan also includes an FDIC-insured savings portfolio that invests entirely in a Sallie Mae High-Yield Savings Account. This is the safest option, but it also offers the lowest rate of return for account owners.
Like the GIFT529 Plan, an iShares 529 Plan has both age-based and static investments available. However, age-based investments in the iShares program technically rely on the anticipated year of enrollment for a student, rather than their age, though otherwise they work in essentially the same way. These year-of-enrollment portfolios fall into one of the following categories:
• Beneficiary is already in college
• Beneficiary is one year away from enrollment
• Beneficiary is four years away from enrollment
• Beneficiary is seven years from enrollment
• Beneficiary is a decade away from enrolling
• Beneficiary is 13 years from enrollment
• Beneficiary is 16 years away from enrolling
Each portfolio includes a mix of U.S. equities, international equities, real estate, and fixed-income investments (with the exception of the in-college portfolio, which is strictly fixed-income).
The static investment options in the iShares Plan are even more extensive than the year-of-enrollment options, with a total of 22 different funds or portfolios to choose from. All of these investments take the form of exchange-traded funds, and they can be split into three categories:
• Four Asset Allocation Portfolios – Aggressive, Moderate, Conservative, and Fixed Income
• 17 Custom iShares Portfolios, which include real estate, equity, and fixed-income funds
• A Savings Portfolio insured by the FDIC
Like any investment account, a 529 plan’s value is largely determined by how well it performs (e.g., how much money it earns for your child’s college fund). Determining the overall performance of a given 529 plan requires taking a few factors into account, such as how much you’ll lose in fees with a particular portfolio or what tax benefits you can expect, but the biggest indicator of performance is undoubtedly the rate of return on your investment.
Because Arkansas’s 529 plans offer a wide variety of investment opportunities, each with its own performance metrics, it’s important to look through the different options to see how well one portfolio does compared to another before deciding on your own investments. The following are the rates of return for Arkansas’s 529 plans, both with age-based and static investments, averaged over the last five years (or the most recent years available).
Within the GIFT529 Plan, performance information is sorted by portfolio. Blended portfolios are only available through age-based investments, while the others are available as individual portfolios. However, age-based accounts include a variety of portfolios, not just the blended options; for more information on which portfolios are included in a particular investment, visit the GIFT529 website.
Only one year of data available for the blended portfolios because they were opened in late 2018.
• Blended Aggressive Growth Portfolio: 15.38%
• Blended Moderate Growth Portfolio: 10.36%
• Blended Conservative Growth Portfolio: 2.60%
• Blended Income Portfolio: 3.60%
• Aggressive Growth Portfolio: 12.45%
• Growth Portfolio: 10.46%
• Moderate Growth Portfolio: 8.39%
• Conservative Growth Portfolio: 6.16%
• Income Portfolio: 2.92%
• Interest Accumulation Portfolio: 1.75% (less than five years of data available; account opened in 2016)
• GIFT Plan Savings Portfolio: 1.01%
In addition to the year-of-enrollment portfolios (the iShares equivalent of age-based portfolios), the account owner of an iShares 529 plan can choose from a number of individual accounts that fall into three different categories. In addition, all categories of investments come in three forms – Class A, Class F, and Class L – which invest in the same pools of securities but have distinct fee structures. The rates of return on all of these portfolios are available below, averaged since the inception of each portfolio (some of which are newer than others).
• iShares College Portfolio – Class A: 0.17%; Class F: -0.19%; Class L: 0.47%
• iShares 2021 College Portfolio – Class A: 5.66%; Class F: 3.72%; Class L: 5.98%
• iShares 2024 College Portfolio – Class A: 8.09%; Class F: 4.45%; Class L: 8.45%
• iShares 2027 College Portfolio – Class A: 9.13%; Class F: 8.95%; Class L: 9.49%
• iShares 2030 College Portfolio – Class A: 9.62%; Class F: 9.31%; Class L: 9.97%
• iShares 2033 College Portfolio – Class A: 10.06%; Class F: 9.53%; Class L: 10.39%
• iShares 2036 College Portfolio – Class A: 11.92%; Class F: 13.83%; Class L: 13.11%
• iShares Aggressive Portfolio – Class A: 10.73%; Class F: 6.00%; Class L: 11.13%
• iShares Moderate Portfolio – Class A: 8.33%; Class F: 5.52%; Class L: 8.69%
• iShares Conservative Portfolio – Class A: 4.80%; Class F: 4.56%; Class L: 5.12%
• iShares Fixed Income Portfolio – Class A: 1.91%; Class F: 2.79%; Class L: 2.27%
• iShares Core High Dividend Portfolio – Class A: 5.03%; Class F: 8.02%; Class L: 5.35%
• iShares Core MSCI EAFE Portfolio – Class A: 7.51%; Class F: 1.80%; Class L: 7.83%
• iShares Core MSCI Emerging Markets Portfolio – Class A: 12.33%; Class F: 1.79%; Class L: 12.70%
• iShares Core MSCI Total Intl. Stock Portfolio – Class A: 8.56%; Class F: 6.08%; Class L: 8.90%
• iShares Core S&P Total U.S. Stock Market Portfolio – Class A: 10.92%; Class F: 12.39%; Class L: 11.70%
• iShares Core U.S. REIT Portfolio – Class A: 2.49%; Class F: 4.60%; Class L: 2.82%
• iShares Edge MSCI Min. Vol. EAFE Portfolio – Class A: 4.30%; Class F: 6.46%; Class L: 4.65%
• iShares Edge MSCI Min. Vol. Emerging Markets Portfolio – Class A: 6.39%; Class F: 2.93%; Class L: 6.74%
• iShares Russell 1000 Portfolio – Class A: 15.12%; Class F: 9.21%; Class L: 15.49%
• iShares Russell 2000 Portfolio – Class A: 13.37%; Class F: 8.33%; Class L: 13.73%
• iShares Short-Term Corporate Bond Portfolio – Class A: 2.03%; Class F: 1.97%; Class L: 2.35%
• iShares 20+ Year Treasury Bond Portfolio – Class A: 5.19%; Class F: 6.98%; Class L: 5.52%
• iShares Core U.S. Aggregate Bond Portfolio – Class A: 2.72%; Class F: 3.92%; Class L: 3.06%
• iShares iBoxx $ High Yield Corporate Bond Portfolio – Class A: 5.12%; Class F: 4.44%; 5.46%
• iShares iBoxx $ Investment Grade Corporate Bond Portfolio – Class A: 5.36%; Class F: 4.51%; Class L: 5.68%
• iShares Short Treasury Bond Portfolio – Class A: -0.02%; Class F: 0.36%; Class L: 0.30%
• iShares TIPS Bond Portfolio – Class A: 3.18%; Class F: 3.68%; Class L: 3.50%
• Savings Portfolio – Class A: 1.08%; Class F: 0.84%; Class L: 1.11%
Yes, you can deduct contributions to a 529 plan in Arkansas; in fact, the state is one of the most generous in terms of who can claim a state tax deduction and how much they can deduct.
Not all states offer a tax benefit for making contributions to 529 plans; some choose not to create this incentive, while others simply don’t have a personal income tax to begin with. Among those states that do provide a deduction or credit, the majority limit the benefit to those who stick with an in-state plan; for instance, an account owner who lives in Maryland can’t claim deductions for contributing to an Arkansas 529 plan. Luckily, Arkansas belongs to a group of states that allow deductions for contributing to any 529 plan, not just their own.
If you’re a resident of The Natural State with an Arkansas 529 plan, you can claim a deduction of up to $5,000 per year or $10,000 if you’re a married couple filing jointly; Arkansas also allows for a four-year carryforward period on any excess contributions beyond that limit. Arkansas residents with a 529 plan from another state can claim up to $3,000 per year per person or $6,000 per year for married couples filing together.
In addition to this basic deduction, Arkansas allows a separate deduction for account owners who deposit rollover contributions from another 529 plan up to a limit of $7,500 per year per person or $15,000 per year per couple. Employers can also benefit from a tax break, albeit a slightly smaller one; they can claim a deduction of $500 per employee for matching contributions to an Arkansas 529 plan.
To take advantage of the benefits of Arkansas’s 529 plans, you’ll need to open an account through the program of your choice. For the most part, these plans have the same requirements for new account owners, with one notable exception: the minimum deposit needed to open an account.
As with other aspects of this direct-sold 529 plan, the GIFT529 College Investing Plan is less expensive for new account owners, thanks to its low initial deposit requirement. When starting one of these plans, you’ll only need a lump sum of $25, and subsequent contributions only need to be $10 or more. For those with automated contributions, you’ll need to provide just $5 per pay period, $10 per month, or $30 per quarter, depending on how your plan is set up.
As long as you have these funds on hand, you’ll be able to open an account online or through the free Sootchy app by providing the necessary personal information for yourself and the account beneficiary. This will require basic contact info, such as your name and date of birth, as well as those of the beneficiary of the plan. You’ll also need both parties’ Social Security Numbers along with the routing and account numbers for your bank.
Once the account is set up and you’re ready with your first deposit, the last step is picking your investments. Whether you choose an age-based portfolio or static investments, remember that you’ll be able to change your decision at a later date, if you so choose, either through the Sootchy app or the plan’s online portal.
Just like the GIFT529 Plan, the iShares 529 Plan requires a bevy of personal information for both account owner and beneficiary, but the minimum initial contribution for this plan is quite a bit higher. If you’re looking to make a lump sum deposit, you’ll need to have $500 ready, and all subsequent contributions must be at least $50. This requirement is lower for automatic investments, however. All you’ll need is $50 per month, $150 per quarter, or $25 per pay period through a direct deposit arrangement.
Otherwise, the process is largely the same. You can sign up for an iShares plan through the program’s website or through the free Sootchy app in as little as 15 minutes, then choose your investment portfolio. Our app also makes it easy to manage your account or make contributions, and you can even invite friends and family to chip in as well.
Opening a 529 plan for your loved one can make college much more affordable, especially if you get started early and give the plan time to generate earnings. If your child, grandchild, niece, nephew, cousin, or any other family member may one day pursue higher education – whether it’s college, trade school, or an apprenticeship – download our app and check out Arkansas’s 529 plans today.