Finding the right financial tool to help your family pay for higher education isn’t easy, partly because there are so many options out there. From Coverdell accounts and custodial funds to the ever-popular 529 plans, the parents of a prospective student have a lot to consider before choosing a savings plan. Of all the options, 529 plans are arguably the most beneficial; not only do they provide an array of tax benefits, but they’re easy to manage as well, and friends and family can make contributions to help your loved one pay for college. One of the best advantages of 529 plans is that there are so many, since each state has its own plan (or, in some cases, multiple plans). That might not sound too helpful if you live in a state with a lousy plan, but it’s worth asking: Can you use a 529 plan out of state? To find out, keep reading as the experts at Sootchy explain.
What Out-of-State 529 Plans Can You Sign Up For?
For the most part, 529 plans are accessible to residents of any state, meaning that families can explore a range of out-of-state options in addition to whatever their home state offers. However, there are a few plans that are exclusive to the residents of a particular state. Generally, either the beneficiary or the account owner can fulfill a plan’s residency requirements; the following 529 plans feature restrictions of this nature:
• Florida – Florida 529 Savings Plan, Stanley G. Tate Florida Prepaid College Plan
• Illinois – College Illinois! 529 Prepaid Tuition Program
• Louisiana – Student Tuition Assistance and Revenue Trust (START) Saving Program
• Maryland – Maryland529 Prepaid College Trust
• Michigan – Michigan Education Trust
• Mississippi – Mississippi Prepaid Affordable College Tuition (MPACT) Program
• Nevada – Nevada Prepaid Tuition Program
• New Jersey – NJBEST 529 College Savings Plan
• Pennsylvania – Pennsylvania 529 Guaranteed Savings Plan
• South Carolina – Future Scholar 529 College Savings Plan (Direct)
• South Dakota – CollegeAccess 529 (Direct)
• Texas – Texas Tuition Promise Fund
• Washington – Guaranteed Education Tuition (GET)
• West Virginia – SMART529 WV Direct
With a few exceptions, these 529 plans are not the only ones a particular state has to offer. Illinois, for instance, has three plans, only one of which comes with a residency requirement.
Pros and Cons of Using an Out-of-State 529 Plan
Although choosing an out-of-state 529 plan may seem like a hassle, the truth is that there are a number of possible benefits to doing so. For starters, not being stuck with your own state’s plan is a huge plus, since many plans feature unattractive requirements; South Dakota’s 529 plan, for instance, forces new account owners to make a minimum initial deposit of $1,000, while others have small or no minimums.
In addition, different 529 plans often provide very different rates of return, and some come with much higher fees than others. Taken together, these factors may make an out-of-state 529 plan a far better option than that in your state, so exploring those options is important if you’re going to get the most out of your account.
That said, there are also one or two benefits to using an in-state plan that you could miss out on by going out of state. The biggest of these benefits is the potential for a state tax deduction or credit, which many states offer to those who use the in-state option. The ability to deduct thousands of dollars from your state income taxes may offset any disadvantage inherent to your state’s plan, which should at least factor into your final decision.
However, for residents of a few particular states, it doesn’t matter what plan you contribute to; if you live in Pennsylvania, Kansas, Arizona, Minnesota, Montana, or Missouri, you can claim a deduction on your state income taxes for contributions to any 529 plan. On the other end of the spectrum, seven states – Florida, Texas, Alaska, Washington, Nevada, Wyoming, and South Dakota – don’t have any income taxes from which to deduct, so if you live in one of those states, it won’t matter where your 529 plan is from for state tax purposes.
Choosing an Out-of-State 529 Plan
If you’ve decided to open an out-of-state 529 plan, you may have seen that you have a lot to choose from – more than 80 plans are available for enrollment nationwide. When looking at 529 plans out of state, be sure to keep an eye on details like whether the plan requires a certain amount up front, how much you’ll pay in fees, how well the plan has performed in recent years, and what kinds of investment options are offered. Finally, remember that 529 education savings plans differ greatly from 529 prepaid tuition plans; while one type may fit your personal goals, another might not.
That said, some plans stand out from the pack, whether because of low fees, a high rate of return, or other value-adding features. The following plans are consistently rated at the top of all 529 plans:
• New York’s 529 College Savings Program (Direct)
• Ohio’s CollegeAdvantage 529 Plan
Open a 529 Plan Out of State with Help from the Team at Sootchy
Picking the right 529 plan from either your state’s offerings or the out-of-state options can seem like an overwhelming task, but with help from the experts at Sootchy, the process can get a lot easier. Simply download the Sootchy app, and we’ll guide you through choosing a 529 plan, opening that plan, and managing your new plan; friends and family members can even make contributions quickly and easily through the app. Learn more about the benefits of 529 plans by visiting Sootchy online today.