Two types of state 529 college savings plans let you invest tax-free
With all the uncertainty the pandemic has meant for the college-bound, one thing is certain: College costs are going to increase. But there’s an easy way to protect against big bills down the road. Washington state offers two kinds of government-operated 529 college savings plans to pay for future college costs. Those costs can include tuition, fees, room & board, books, and supplies. And you can open an account for anyone – your child, grandchild, friend or even yourself.
DreamAhead College Investment Plan
The DreamAhead College Investment Plan is somewhat like a Roth IRA. So you invest after-tax dollars, but the earnings grow tax-free, and you pay no tax when you cash out. The DreamAhead plan restricts you to investing in a selection of large, well-established mutual funds.
There are two types of portfolios. One type is designed to reduce risk as the planned year of enrollment gets closer. For example, if you were to start an account today for a newborn bundle of joy, a greater percentage of your portfolio would be in stocks. And as the time gets near for college, the risk will shift lower (concentrating on bonds, for instance).
The other type of portfolio lets you invest in any of the available funds, and you determine your own comfort level with risk. And importantly, there is risk – these investments are not insured by the government or by any other guarantee, just like any mutual fund.
You can start a DreamAhead plan anytime during the year
GET Savings Plan
A Guaranteed Education Tuition (GET) plan removes risk completely. Instead of investing in stocks and bonds, the GET plan lets you buy units at a set price that translate to college tuition. In other words, you lock in a lower price for tuition that you’ll use years from now. Every 100 units you buy equals a year of tuition at Washington’s highest-priced public school (University of Washington or Washington State University). However, you’re not stuck going to the U Dub or Wazzu. You can use your investment at public or private schools anywhere in the US. Even some international schools!
GET enrollment starts November 1 each year and runs through May 31. Units starting next month will cost $133, and there are a number of ways to pay for them. You get to decide how much and how often to save. For example, you can pay a lump sum to buy units up front, or arrange a monthly payment plan. You can buy a total of up to 800 credits over the life of the plan to cover tuition all the way to grad school.
This page on the SEC website offers an introduction to the 529 program.
This state website gives details on Washington’s two 529 plans and can help you start one.
Lastly, you can learn more about our services here!