529 Plans

North Dakota 529 Plans | College Savings Accounts in ND

March 19, 2021
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Sootchy Team

Learn how you can take advantage of one of the best college savings options available in North Dakota, the 529 plan.

North Dakota 529 Plans | College Savings Accounts in ND

From coast to coast, families in the U.S. are constantly on the lookout for new ways to pay for their children’s college education. With every year, the cost of college continues to rise, with many institutions requiring tens of thousands of dollars per year in tuition alone, not to mention the cost of room and board, books, computers, and other essential expenses. One of the most popular ways to cover these costs is by opening a 529 plan, a type of tax-advantaged investment account administered by each state and exempt from federal income tax. If you live in North Dakota – or any other state, for that matter – and would like to hear what The Peace Garden State has to offer, keep reading as we lay out the details of North Dakota’s 529 plans.

How Do North Dakota’s 529 Plans Work?

While the same basic principles apply to all 529 plans, there are actually three different kinds of plans: the education savings plan, the prepaid tuition plan, and the ABLE account (also known as a 529A account). All of these plans feature the same tax benefits, such as a federal income tax exemption for earnings on contributions, and many also boast state tax exemptions, deductions, or credits that can further reduce the financial burden of higher education.

North Dakota’s Education Savings Plan

Here, we’ll limit our explanation to only one of the 529 plan varieties – the education savings plan – since it’s the only one North Dakota offers. This type of 529 account is the most common across the country, largely because it offers a useful blend of flexibility and accessibility. (By comparison, prepaid tuition plans have fewer acceptable uses, and ABLE accounts are only open to Americans living with disabilities.)

In practice, education savings plans work like many other types of investment accounts, such as the ever-popular 401(k). The account owner will make contributions to the plan, which are then invested based on whatever investment option they have selected. However, unlike most other tax-favored accounts, a North Dakota 529 plan grows entirely tax-free, both at the state and federal levels, as long as the funds go toward a qualified education-related expense.

Although most people associate 529 plans with in-state college or tuition payments, specifically, education savings plans actually have a number of other uses. Account owners in North Dakota can use their funds to pay for attendance at most schools around the country – and even a few abroad – and the money can go toward a variety of costs, including housing, equipment, books, and fees. With the passage of the 2017 tax bill, these plans can also be used for trade schools, apprenticeships, and even private elementary or secondary schools.

It’s also worth noting that contributions are not limited to those made by the account owner. Friends and family members can also donate to a 529 plan and help to fund the education of their loved one; some states, including North Dakota, even offer a tax deduction or credit for contributing to a plan, even if you do not own it. The Sootchy app makes it easy to suggest a contribution for birthdays, graduations, and other major life events.

Direct-Sold vs. Advisor-Sold 529 Plans

Like some other states, North Dakota has one main 529 program, College SAVE. Within this program, the state offers both direct-sold plans – those obtained by enrolling directly with the program – and advisor-sold plans – those your financial advisor signs you up for.

While the differences between these types of education savings plans can be pronounced in some states, North Dakota’s options are strikingly similar, even when it comes down to investment options. The biggest factors separating one from the other are the plans’ respective performance metrics and fee structures; the advisor-sold plans tend to perform better but are more expensive to maintain, as evidenced by the higher fees with College SAVE’s advisor-sold option. Below, we’ll look at the investments available under both plans, then discuss how well each has performed in recent years.

Investments Options for North Dakota 529 Plans

Within virtually every 529 education savings plan, there are two main types of investments: the age-based variety, which changes automatically over time, and the static variety, which stays the same until the account owner specifies a reallocation of funds. However, under these two umbrellas, the individual portfolios available through a particular state’s program can vary widely from what’s offered elsewhere. In North Dakota, both advisor-sold plans and direct-sold plans feature the same types of investment options, though the performances of each plan type vary somewhat.

It’s also important to know that account owners can change their investments and reallocate the funds in the account, something that anyone with a static portfolio will probably need to do at least once or twice. This option gives the owners of 529 plans some flexibility with their investments, but only to a point. Changes can only be made twice per calendar year, but there is a workaround; changing the beneficiary of a plan allows for a free investment change, and as long as the new beneficiary is a family member (as recognized by the IRS), there’s no penalty for making that change.

Age-Based Portfolios

Like all age-based 529 portfolios, North Dakota’s options are split into age bands leading from birth through the expected age of enrollment (typically 18). Over time, the investments in these portfolios shift from more aggressive to more conservative, an approach designed to maximize early returns then protect gains as college approaches. North Dakota account owners can choose from three overall risk levels – aggressive, moderate, and conservative – each of which is split into nine age groups. All portfolios comprise a mix of stocks, bonds, or short-term reserves, depending on the specified level of risk.

Static Portfolios

Most states’ 529 plans offer far more static investment options than age-based options, and North Dakota is no exception. In total, an account owner with a custom-built static portfolio has a dozen options to choose from, all of which are made up of a mix of six different Vanguard funds. The following are the portfolios offered for North Dakota 529 plans with static investments; each comes in a direct-sold version and an advisor-sold version.

• Aggressive Growth Portfolio

• Aggressive Portfolio

• Growth Portfolio

• Blended Growth Portfolio

• Moderate Growth Portfolio

• Blended Moderate Growth Portfolio

• Conservative Growth Portfolio

• Conservative Portfolio

• Income Portfolio

• Balanced Income Portfolio

• Conservative Income Portfolio

• Interest Accumulation Portfolio

North Dakota 529 Plan Performance

In addition to the various investment options, fees, and tax benefits unique to each 529 plan, the performance of a given plan or portfolio is one of the biggest factors setting one account apart from another. After all, every investor wants to see the greatest returns possible for their money, especially if those funds will be going to further their child’s education.

Here, we’ll take a look at how well North Dakota’s 529 plans have performed in the past few years. It should be noted that many of the state’s portfolios were started in 2017 or 2018, so there are limited performance metrics available for some investment options, most notably those for direct-sold plans. Keep in mind that the less time a portfolio has been around, the more difficult it is to gauge future performance.

Below, we’ve laid out the rates of return for each investment in North Dakota’s College SAVE program and provided the length of time on which the average is based. Performance data is separated based on whether the plan is direct-sold or advisor-sold. All age-based investments comprise some mix of the following portfolios; more information on which options fall under which age-based portfolios is available on the program’s website.

Direct-Sold Plans

• Aggressive Growth Portfolio: 10.14% (3-year average)

• Aggressive Portfolio: 15.40% (1-year average)

• Growth Portfolio: 8.98% (3-year average)

• Blended Growth Portfolio: 13.13% (1-year average)

• Moderate Growth Portfolio: 7.82% (3-year average)

• Blended Moderate Growth Portfolio: 10.32% (1-year average)

• Conservative Growth Portfolio: 6.36% (3-year average)

• Conservative Portfolio: 7.58% (1-year average)

• Income Portfolio: 3.68% (3-year average)

• Balanced Income Portfolio: 3.71% (1-year average)

• Conservative Income Portfolio: 2.69% (1-year average)

• Interest Accumulation Portfolio: 1.79% (3-year average)

Advisor-Sold Plans

• Aggressive Growth Portfolio: 10.15% (10-year average)

• Aggressive Portfolio: 15.02% (1-year average)

• Growth Portfolio: 8.60% (10-year average)

• Blended Growth Portfolio: 12.76% (1-year average)

• Moderate Growth Portfolio: 6.83% (10-year average)

• Blended Moderate Growth Portfolio: 9.91% (1-year average)

• Conservative Growth Portfolio: 4.99% (10-year average)

• Conservative Portfolio: 7.15% (1-year average)

• Income Portfolio: 2.18% (10-year average)

• Balanced Income Portfolio: 3.34% (1-year average)

• Conservative Income Portfolio: 2.42% (1-year average)

• Interest Accumulation Portfolio: 1.76% (3-year average)

Can I Deduct My 529 Plan Contributions in North Dakota?

Many states offer the option to deduct or claim a credit for contributions to 529 plans, but some of those benefits are restricted to certain people or plans. In North Dakota, a tax deduction is available for anyone giving to a plan, but only if it’s one of the plans administered by North Dakota; contributions to an account administered by another state are not eligible.

For those contributing to a North Dakota plan, a state tax deduction of up to $5,000 per person per year is available, or up to $10,000 per year for married couples who are filing their taxes together. This deduction applies to all contributions in a calendar year, and it is not limited to account owners the way some other 529 plan deductions and credits are.

How to Open a 529 Plan in North Dakota

Although the details of 529 plans can seem a bit overwhelming, opening a plan in North Dakota is actually pretty easy. The process varies depending on whether you’re after a direct-sold plan or advisor-sold plan, but the information required is largely the same.

Opening a Direct-Sold Plan

To enroll in a direct-sold 529 plan in North Dakota, you’ll need to provide some basic information about yourself, the beneficiary, and any successor you’d like to name for the account; this is the person who would take over management of your plan in the event that you passed away. Opening a plan can be handled online or through the free Sootchy app, which makes the entire process simple and easy.

Account owners will need their name, address, date of birth, and Social Security or Taxpayer Identification number, as well as the name, date of birth, and Social Security or Taxpayer Identification number of the beneficiary; successor account owners only need a name and birth date.

Once you’ve provided this basic information, you’ll be asked to decide how you want your contributions to be invested. Keep in mind that your decision at this step is not set in stone, but the number of times you can change your investments is limited on a per-year basis.

After choosing your investment options, you’ll need to give the account and routing numbers for the bank account from which you’ll make your first contribution. All account owners must make an initial contribution of at least $25 when enrolling in a plan, and all subsequent deposits must meet that threshold as well (payroll direct deposits must be at least $12.50).

Opening an Advisor-Sold Plan

When opening an advisor-sold 529 plan in North Dakota, your financial advisor will handle the enrollment process. Just let them know what plan you’ve selected, discuss and choose your investments, and they should handle the rest.

Open a North Dakota 529 Plan Today with the Free Sootchy App

Whether you have a new baby on the way or are planning for the future of a loved one, 529 plans offer a great opportunity to minimize student debt and build substantial funds to help cover the ever-growing cost of college. With the Sootchy app, you can open your new account in as little as 15 minutes, then manage the plan from the same app. You can even invite friends and family to make contributions, making college a community affair. Learn more about Sootchy and the benefits of 529 plans by visiting us online or downloading our free mobile app today.

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