Ways to Save for College in Texas
One of the main barriers many prospective college students confront is the high cost associated with attending college. The figure often can be more than a hopeful student can afford.
Fortunately, there are options available to Texas students designed to help them save for college.
Saving for College: A 529 Plan
A 529 plan is a savings plan designed to assist families or individuals saving for college. These types of plans, which are operated by a state or educational institution, offer significant income tax breaks.
Earnings on 529 plan investments are tax-deferred and withdrawals for qualified education expenses are exempt from federal income taxes. Additionally, 529 plan savings can be used at thousands of accredited colleges and vocational schools throughout the United States.
Recognizing the need to assist would-be college students attain a higher education, Texas offers two types of 529 plans:
- A Prepaid Tuition Plan
- A Traditional Savings Plan
The Texas Tuition Promise Fund
The Texas Tuition Promise Fund is a prepaid tuition plan that allows Texas residents to lock in the current tuition costs for a two-year or four-year degree at a Texas public college or university.
Essentially, the Texas Tuition Promise Fund offers a way to purchase "tuition units" that can later be traded for college credits.
Individuals can purchase:
- All-Texas College Units, which can be used to pay for tuition at any public Texas college or university, regardless of its cost.
- Texas Four-Year College Units, a less expensive option, which are based on the average cost of tuition for in-state students at all Texas public colleges and universities.
- Texas Junior College Units, the least expensive option, which cover the average cost of tuition for in-state students at two-year Texas public colleges.
Those saving through the Texas Tuition Promise Fund can purchase tuition units all at once, purchase them over time or acquire them through an installment plant. Through the plan, 100 tuition units will pay for one year of college, or 30 college credits. In addition to Texas public colleges and universities, the units can be used at private and public colleges throughout the United States.
The Texas College Savings Plan
A qualified 529 savings plan, the Texas College Savings Plan works much like a 401K or IRA. By investing your savings in mutual funds or similar investments, your savings will increase or decrease in value based on the performance of the particular investment option you select.
The Texas College Savings Plan, which is sponsored by the state of Texas, offers 20 different investment portfolios; tax-free growth for investments; and tax-free withdrawals on earnings used for qualified higher education expenses, such as books, room and board, and transportation.
Among the many investment portfolio options offered by the savings plan is the Age-Based Portfolios option. Through this option, an account is placed in one of six portfolios based on the beneficiary's age as well as the accountholder's choice of investment strategy. Age-Based portfolios adjust automatically over the life of the account, becoming more conservative as the beneficiary ages.
Individuals also can select from the Static Portfolios option, which provides more control over the account, allowing the accountholder to adjust the portfolio as his or her needs or goals change.