No matter where you go in the U.S., you’re bound to find high school students stressing over college applications, GPAs, and a number of equally ubiquitous academic concerns. At the same time, many – if not most – of those students will be supported by parents who are just as stressed about how to pay for their child’s education. As the price of college climbs ever higher, the goal of being able to afford tuition seems further and further out of reach, prompting families around the country to seek out financial tools that can help them save for college. Perhaps the most popular of these is the 529 plan – a specialized investment account aimed at making higher education more affordable for U.S. families. Each state has its own version; in fact, some – such as Virginia – have several, and parents and family members can choose almost any option. Below, we’ll look at the plans Old Dominion has to offer; keep reading for more on 529 college savings accounts in Virginia.
How Do the 529 Plans in Virginia Work?
When looking at what the various states have to offer, you’ll likely notice that several different types of accounts fall under the label of “529 plans.” The three varieties have certain similarities, of course; they all enjoy certain federally mandated tax benefits, as well as restrictions on how funds can be used. However, the ways that they function vary considerably, and most states only have one or two varieties on offer. In this piece, we’ll skip over the prepaid tuition plan, as Virginia doesn’t offer one, and instead focus on education savings plans and ABLE accounts.
If you’ve ever used a Roth IRA, the way an education savings plan works should be pretty familiar. Account owners deposit after-tax funds into their account, which are then invested in one or more portfolios decided on by the account owner. Whatever is earned through these investments is added to the account balance free of federal (and generally state) income taxes and can then be spent on education-related costs at almost any college or university in the country (and a few located abroad as well).
ABLE accounts work in a similar fashion, with two or three notable differences. Firstly, these plans are only available to Americans living with a disability that was diagnosed before the age of 26; secondly, ABLE accounts can be used to cover a much wider variety of expenses, including housing, job training, and medical bills. The last major distinguishing factor between ABLE accounts and standard education savings plans comes down to the issue of ownership; whereas other 529 plans often have one person as the owner of the account and another as the beneficiary, the same person holds both roles with an ABLE account.
Not all states have ABLE accounts, but most have at least one kind of 529 plan (typically a prepaid tuition plan). In total, Virginia has four different 529 plans available to the public: two education savings plans, called CollegeAmerica and Invest529, and two ABLE accounts, known as ABLEAmerica and ABLEnow.
Invest529
The most widely used of Virginia’s 529 plans is an education savings plan called Invest529, an example of a direct-sold plan. Direct-sold 529 plans are those that allow new account owners to sign up themselves, rather than having to go through a financial advisor (as they would with an advisor-sold plan). Because this variety of 529 plan comes with fewer added services, it tends to have lower fees than the advisor-sold kind, which could potentially make a direct-sold option more beneficial.
CollegeAmerica
The advisor-sold version of Virginia’s education savings plan is CollegeAmerica, which predictably comes with higher fees than its direct-sold counterpart. However, there are some trade-offs that could make the plan worth considering; for instance, account owners will be able to choose from a long list of static portfolios in which they can invest, and there’s greater oversight of the portfolios, which could potentially lead to greater returns.
ABLEnow
Virginia’s first ABLE option is ABLEnow, a direct-sold plan managed by the state. Anyone who has a disability diagnosed before age 26 and who is eligible for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) can enroll in the ABLEnow program, but there are certain ABLE account-specific limitations that apply. One point to note is that annual contributions cannot exceed $15,000, though account owners may be able to add an additional amount (up to the poverty line) if the extra money comes from their wages.
ABLEAmerica
Whereas most ABLE accounts are available through financial advisors, ABLEAmerica is an advisor-sold plan – the first ever, in fact. As with other advisor-sold plans, these accounts carry higher fees, but the difference isn’t necessarily as great as with Virginia’s two education savings plans. Plus, ABLEAmerica account holders get a few more investment options to choose from, allowing for greater flexibility to customize the plan.
Types of Investments with Virginia’s 529 Plans
Generally, both education savings plans and ABLE accounts come with two types of investment options, and the 529 plans administered by the Commonwealth of Virginia are no exception. Below, we’ve provided a plan-by-plan breakdown of your investment options when you enroll in one of Virginia’s four 529 plans, but first we’ll briefly touch on how these investments work.
Age-based portfolios are those that change automatically with the passage of time. Initially, these portfolios invest funds more aggressively with the philosophy that early investments leave time to recoup losses before college arrives. As the beneficiary gets closer to college age (or, alternatively, their projected year of enrollment), the investments get more and more conservative as funds are reallocated to protect gains and preserve the balance; these shifts typically happen every two or three years.
On the other hand, static portfolios remain the same over time, and funds are only reallocated at the direction of the account owner. More experienced investors may prefer this option, since it not only comes with a much greater variety of investments to choose from but is also far more customizable. However, a static portfolio may also carry more risk, and fees may be higher depending on what investments are chosen.
Within the realm of static portfolios, there are two common sub-groups: premade portfolios with a specific blend of investments and set risk level and customizable portfolios that can be built from a selection of individual funds. Advisor-sold 529 plans like Virginia’s CollegeAmerica and ABLEAmerica programs tend to have more individual funds to choose from.
Invest529
Virginia’s Invest529 program offers a diverse set of portfolios designed to meet the specific needs and financial goals of account owners.
Target Enrollment (Age-Based) Portfolios
Unlike some 529 plans, Invest529 does not offer a plan for those already enrolled; instead, a standard target enrollment option will simply transition to a conservative, post-enrollment portfolio when the beneficiary enters college.
• 2024 Portfolio
• 2027 Portfolio
• 2030 Portfolio
• 2033 Portfolio
• 2036 Portfolio
• 2039 Portfolio
Index Portfolios
Because they simply follow a market trend and therefore require very little oversight, index portfolios have some of the lowest fees of all the investment options listed in this guide.
• Stock Index
• Bond Index
• International Index
• Inflation-Protected
• Real Estate Investment Trust
Target Risk Portfolios
These prepackaged portfolios comprise a mix of investments designed to carry a particular level of risk for account owners. Generally, the more aggressive the portfolio, the higher the risk and the greater the potential returns.
• Aggressive Growth
• Moderate Growth
• Conservative Income
• Active Aggressive
• Active Moderate
• Active Conservative
Principal Protected Portfolios
The following investment options are meant – as the name implies – to protect an account’s balance while offering stable but minimal returns. Virginia is notable for its Tuition Track Portfolio, which is designed to grow alongside the average cost of enrollment at the state’s public universities.
• Tuition Track Portfolio
• FDIC-Insured
• Stable Value
Specialty Portfolios
The last two investment options available through Invest529 do not fall into any of the categories listed above.
• ESG Core Equity
• Global Equity
CollegeAmerica
Like most 529 programs, CollegeAmerica offers both static and age-based portfolios, plus a variety of individual investments.
Target Enrollment (Age-Based) Portfolios
The age-based portfolios available through CollegeAmerica work based on the beneficiary’s estimated date of enrollment and are spread at three-year intervals, with each portfolio encompassing both the year before and year after the one specified in the portfolio name. (For example, the 2030 fund includes enrollments in 2029, 2030, and 2031.) The College Enrollment Fund is available to those already enrolled at a college or university.
• American Funds College Enrollment Fund
• American Funds College 2021 Fund
• American Funds College 2024 Fund
• American Funds College 2027 Fund
• American Funds College 2030 Fund
• American Funds College 2033 Fund
• American Funds College 2036 Fund
Static Portfolios
The following static portfolios from CollegeAmerica work as prepackaged investment options based around a particular level of risk. The most aggressive portfolio (and therefore, the riskiest) is the Global Growth option, while the Preservation Portfolio is the most conservative and least risky.
• American Funds Global Growth Portfolio
• American Funds Growth Portfolio
• American Funds Growth and Income Portfolio
• American Funds Moderate Growth and Income Portfolio
• American Funds Conservative Growth and Income Portfolio
• American Funds Preservation Portfolio
Individual Funds
Advisor-sold 529 plans often come with a number of individual funds an account owner can invest in to create, in essence, a custom portfolio. Most plans come with maybe two dozen options, but CollegeAmerica accounts offer more than 30 to choose from.
• EuroPacific Growth Fund
• The New Economy Fund
• New Perspective Fund
• AMCAP Fund
• American Funds Global Insight Fund
• American Funds Multi-Sector Income Fund
• American Funds International Vantage Fund
• The Growth Fund of America
• New World Fund
• SMALLCAP World Fund
• American Mutual Fund
• Capital World Growth and Income Fund
• Fundamental Investors
• The Investment Company of America
• Washington Mutual Investors Fund
• Capital Income Builder
• The Income Fund of America
• American Balanced Fund
• American High-Income Trust
• The Bond Fund of America
• Capital World Bond Fund
• Intermediate Bond Fund of America
• U.S. Government Securities Fund
• Short-Term Bond Fund of America
• International Growth and Income Fund
• American Funds U.S. Government Money Market Fund
• American Funds Mortgage Fund
• American Funds Global Balanced Fund
• American Funds Developing World Growth and Income Fund
• American Funds Inflation Linked Bond Fund
• American Funds Strategic Bond Fund
• American Funds Corporate Bond Fund
• American Funds Emerging Markets Bond Fund
ABLEnow
The owners and beneficiaries of ABLEnow accounts have four investments to choose from: three target-risk portfolios from Vanguard and a Fidelity money market option.
• Aggressive Growth Portfolio
• Moderate Growth Portfolio
• Conservative Income Portfolio
• Money Market Portfolio
ABLEAmerica
Like Virginia’s CollegeAmerica 529 plans, ABLEAmerica accounts are managed by American Funds; as a result, these plans’ investment options comprise six portfolios and one money market fund that are also available to CollegeAmerica account owners.
• American Funds Global Growth Portfolio
• American Funds Growth Portfolio
• American Funds Growth and Income Portfolio
• American Funds Moderate Growth and Income Portfolio
• American Funds Conservative Growth and Income Portfolio
• American Funds Preservation Portfolio
• American Funds U.S. Government Money Market Fund
Virginia 529 Plan Performance
Understandably, the performance of a particular 529 plan is one of the most crucial points of consideration when weighing your options, though it can be tough to gauge just how beneficial a state’s offerings may be, given the laundry list of factors – fees, tax deductions, rates of return – that can affect an account owner’s bottom line. To further complicate matters, Virginia’s 529 plans have, in total, more than 60 funds and portfolios, each with its own level of risk and potential for reward. Below, we’ll look at how the 529 plans in Virginia have performed over the past couple of years to help you decide whether one might be a good fit for you.
Invest529
While Invest529 has more categories of investments than any other option, each tends to be fairly straightforward, and because the program has been around for some time, there’s a wealth of data to indicate performance trends for these investments. All the data below is based on a five-year average rate of return, except where otherwise indicated.
Target Enrollment (Age-Based) Portfolios
• 2024 Portfolio: 7.53%
• 2027 Portfolio: 8.63%
• 2030 Portfolio: 9.58%
• 2033 Portfolio: 10.41%
• 2036 Portfolio: 6.16% (three-year average)
• 2039 Portfolio: 15.40% (one-year average)
Index Portfolios
• Stock Index: 16.60%
• Bond Index: 3.92%
• International Index: 10.26%
• Inflation-Protected: 4.67%
• Real Estate Investment Trust: 6.31%
Target Risk Portfolios
• Aggressive Growth: 12.18%
• Moderate Growth: 10.24%
• Conservative Income: 6.11%
• Active Aggressive: 10.97%
• Active Moderate: 8.61%
• Active Conservative: 5.90%
Principal Protected Portfolios
• Tuition Track Portfolio: Rate set by VA tuition changes
• FDIC-Insured: 1.63% (three-year average)
• Stable Value: 2.03%
Specialty Portfolios
• ESG Core Equity: 16.09%
• Global Equity: 21.37% (one-year average)
CollegeAmerica
Each CollegeAmerica investment comes in six different classes, but given the huge number of funds and portfolios, we’ve elected to provide the performance metrics for only Class 529-A. For the sake of consistency, all rates of return are based on month-end data averaged over the last five years (unless otherwise specified).
Target Enrollment (Age-Based) Portfolios
• American Funds College Enrollment Fund: 1.65%
• American Funds College 2021 Fund: 2.90%
• American Funds College 2024 Fund: 5.22%
• American Funds College 2027 Fund: 6.91%
• American Funds College 2030 Fund: 8.91%
• American Funds College 2033 Fund: 11.17%
• American Funds College 2036 Fund: 8.15% (three-year average)
Static Portfolios
• American Funds Global Growth Portfolio: 16.00%
• American Funds Growth Portfolio: 16.27%
• American Funds Growth and Income Portfolio: 11.76%
• American Funds Moderate Growth and Income Portfolio: 9.92%
• American Funds Conservative Growth and Income Portfolio: 7.36%
• American Funds Preservation Portfolio: 1.75%
Individual Funds
• EuroPacific Growth Fund: 13.44%
• The New Economy Fund: 19.07%
• New Perspective Fund: 17.92%
• AMCAP Fund: 15.97%
• American Funds Global Insight Fund: 13.89%
• American Funds Multi-Sector Income Fund: 4.43% (one-year average)
• American Funds International Vantage Fund: 11.45%
• The Growth Fund of America: 20.16%
• New World Fund: 15.29%
• SMALLCAP World Fund: 19.30%
• American Mutual Fund: 10.92%
• Capital World Growth and Income Fund: 7.61%
• Fundamental Investors: 14.81%
• The Investment Company of America: 13.32%
• Washington Mutual Investors Fund: 13.09%
• Capital Income Builder: 6.43%
• The Income Fund of America: 8.37%
• American Balanced Fund: 9.91%
• American High-Income Trust: 7.79%
• The Bond Fund of America: 3.31%
• Capital World Bond Fund: 3.16%
• Intermediate Bond Fund of America: 2.02%
• U.S. Government Securities Fund: 1.95%
• Short-Term Bond Fund of America: 1.23%
• International Growth and Income Fund: 9.81%
• American Funds U.S. Government Money Market Fund: 0.75%
• American Funds Mortgage Fund: 1.74%
• American Funds Global Balanced Fund: 7.85%
• American Funds Developing World Growth and Income Fund: 11.35%
• American Funds Inflation Linked Bond Fund: 4.19%
• American Funds Strategic Bond Fund: 6.85% (three-year average)
• American Funds Corporate Bond Fund: 5.22%
• American Funds Emerging Markets Bond Fund: 2.57% (three-year average)
ABLEnow
All four ABLEnow investment options come with at least 10 years’ worth of data, so all rates are based on that time frame to give a clear picture of historical performance.
• Aggressive Growth Portfolio: 9.38%
• Moderate Growth Portfolio: 8.11%
• Conservative Income Portfolio: 5.17%
• Money Market Portfolio: 0.54%
ABLEAmerica
Although the underlying investment options available to ABLEAmerica account owners are the same as some of those offered for CollegeAmerica plans, the portfolios and money market fund for ABLEAmerica belong to two distinct classes; we’ve included data for Class ABLE-A below, averaged over the last five years.
• American Funds Global Growth Portfolio: 16.07%
• American Funds Growth Portfolio: 16.35%
• American Funds Growth and Income Portfolio: 11.85%
• American Funds Moderate Growth and Income Portfolio: 10.01%
• American Funds Conservative Growth and Income Portfolio: 7.45%
• American Funds Preservation Portfolio: 1.81%
• American Funds U.S. Government Money Market Fund: 0.81%
Can I Deduct My 529 Plan Contributions in Virginia?
One of the chief tax benefits of a 529 plan is the ability to either deduct contributions from your state income taxes or claim a credit that reduces your financial obligation to the state, though it should be noted that not all states offer this benefit, and those that do set varying limits on how much can be deducted or claimed. Fortunately, Virginia is one state that does offer a tax deduction for contributions to a 529 plan, but there are certain caveats that can limit its usefulness.
First and foremost, contributions can only be deducted from your Virginia state income taxes if they were made to a Virginia 529 plan. Some states offer deductions or credits for contributions to any plan, but Virginia is not among them.
Secondly, only the owner of a Virginia 529 plan can claim a deduction for contributions, including for those made by other individuals. If your brother or sister opens a 529 plan for your niece or nephew, for instance, your contributions to that plan can be deducted from your sibling’s taxes, not yours.
And finally, the state imposes a limit on how much can be deducted in this way. Up to $4,000 in contributions (per account) can be subtracted from your taxable income, so a parent with two children who each get $4,000 toward their plans can deduct $8,000. Keep in mind that the account owner can add contributions by friends and family toward their own deduction, which can make it easy to maximize this tax benefit.
In addition, Virginia offers an unlimited carryforward of contributions in excess of the $4,000 limit, so going over that amount can still be useful. However, this limit does not apply to Virginia taxpayers of age 70 or higher, as they can deduct the full amount of their contributions.
How to Open a 529 Plan in Virginia
After reading through the details of Virginia’s 529 plans, you might assume that opening one of these accounts is difficult or complicated, but the truth is just the opposite. Whether enrolling in a program through a state’s website or with the help of the free Sootchy app, you can get started with a Virginia 529 plan of your own in less than 20 minutes. We’ll go over what it takes to accomplish this below; note that the process is different depending on whether the plan you’re opening is direct-sold or advisor-sold.
Opening a Direct-Sold 529 Plan in VA
As most people don’t have their own financial advisor, the majority of new 529 plans are of the direct-sold variety. This means that the account owner has to open the plan themselves, but luckily the process is fairly easy. You’ll need some pieces of personal information to get started – your name, address, and Social Security Number – as well as that same information for the beneficiary of the account. (Note that Taxpayer Identification Numbers can be used in lieu of a Social Security Number.) Account owners will also need to provide the account and routing numbers for the bank account from which contributions will be made.
To open your new 529 plan, go to the plan’s website or download the free Sootchy app onto your mobile device. Once you’ve done so, just supply the necessary personal information when asked, and you’ll move on to the investment selection. You can choose from any of the portfolios offered by the plan, and remember that your decision is not irrevocable; account owners can change their investments up to twice a year, or more if the change is made when naming a new beneficiary.
The last step is to make your initial contribution to the plan. Some plans, including Virginia’s, require that a minimum amount be deposited into an account when it’s first opened, though VA’s direct-sold 529 plans have very low minimums: Opening a plan through Invest529 will require an initial minimum contribution of at least $10, and there is no minimum for an ABLEnow account.
Enrolling in an Advisor-Sold 529 Plan in VA
Opening one of Virginia’s advisor-sold 529 plans is simple for an account owner; you’ll just need to direct your advisor to enroll you in the plan you want, and they should take care of the rest. Bear in mind that these plans often have higher minimum initial contributions, such as the $250 per fund minimum for CollegeAmerica plans (or $1,000 for the Money Market Fund).
Open a 529 Plan in Virginia with the Free Sootchy App
No matter the background, families around the country have been benefiting from 529 plans for decades. Open an account of your own quickly and easily with the free Sootchy app, which also lets you manage your investments and receive contributions from friends and family on your tablet or smartphone. Learn more about the benefits of Virginia’s 529 plans and those available from every state by visiting us online today.
