georgia's 529 plan

Understanding How to Use Georgia’s 529 Plan to Save for College

by Josh Hunter

Education might be priceless—but it surely isn’t free.

According to data reported to U.S. News & World Report, the average college tuition for the 2019-2020 school year ranged from $41,426 (for private colleges) to $11,260 (for state colleges). These figures do not include room and board, in addition to other expenses, such as books, computers and travel, which can significantly increase the total amount needed to attend college.

Few parents have an extra $40,000+ on hand, so how can families today start saving for their children’s college fund? Or, if they’ve already begun saving, what additional strategies can they put in place to make those savings grow even faster?

529 plans

Named after the section of the Internal Revenue Code that governs it, a 529 plan, also known as a “qualified tuition plan,” offers families a tax-advantaged way to save for education costs. There are two types of 529 plans: educational savings plans and prepaid tuition plans

Educational savings plans, which are sponsored by states, allow families to open an investment account on behalf of their child, who can then use the money for not only tuition and fees but also room and board and other qualifying higher-education expenses at any college or university recognized by the Department of Education. 

The other type of 529 plan, the prepaid tuition plan, as its name implies, is simply a way to prepay tuition and fees at a college at current prices. This locks prices in early, potentially saving families thousands of dollars. 

While the money contributed to a 529 plan can usually only be invested in mutual funds and exchange-traded funds, the underlying benefit is the tax savings, which vary according to state and plan. Generally, families contribute after-tax money to the 529 plan and the earnings grow tax-free.

Georgia’s 529 Plan

The state of Georgia’s 529 educational savings program is known as the Path2College 529 plan.

While residents of any other U.S. state can contribute to the Path2College 529 plan, the plan offers the most tax advantages to Georgia residents, as the account would grow free from both federal and Georgia state income taxes. 

Besides the earnings growing tax-free, there are also tax deductions for Georgia residents who contribute to the state’sPath2College 529 plan. For the 2021 tax year, contributors may deduct up to $4,000 per year on their state income tax form, or $8,000 for joint filers. While the parents of the beneficiary of the 529 plan are often the  main contributors to it, Grandparents and other guardians can also contribute and enjoy certain gift and estate tax benefits when doing so.

However, it’s important to note that contributions to 529 plans do not qualify for a tax deduction on federal income taxes. To make things easier, contributors do not need to itemize deductions on their tax returns. Instead, contributors can simply subtract contributions to the Path2College 529 plan from gross income on their Georgia personal income tax return.

How to open a Path2College 529 Plan Account

A Path2College 529 account must be opened at a brokerage firm; only $25 is needed to start. Georgia state employees can contribute money to their Path2College 529 plans through a payroll deduction option, with a minimum contribution of $15 per paycheck.

It’s also important to note that the maximum contribution limit per beneficiary for the Path2College 529 Plan is $235,000.

Georgia’s Prepaid Tuition 529 Plans

Georgia does also offer 529 state and private prepaid tuition plans. As discussed above, these plans allow you to lock in tuition at a certain rate, but do not include room and board or other education-related expenses. Furthermore, the funds you invest in Georgia’s 529 state prepaid tuition plan can only be used at public universities within the state, conversely funds invested in a private 529 plan can only be used at member colleges, potentially limiting your child’s higher education options.

Final Thoughts

When it comes to saving for college, it pays to start early and have a clear strategy in place. Contact your wealth advisor today to discuss this 529 savings plan and other strategies to make sure you’re covered when it comes to saving for college.