Texas 529 Plan Rules: A Comprehensive Guide to Saving for College

Texas offers two 529 plans to help families save for college: the Texas Tuition Promise Fund (TTPF) and the Texas College Savings Plan (TCSP). Both plans offer tax-advantaged savings, but they have different rules and investment options. This comprehensive guide will walk you through the ins and outs of each plan, so you can make the best decision for your family.

Texas Tuition Promise Fund (TTPF)

Overview

The Texas Tuition Promise Fund (TTPF) is a prepaid tuition plan that allows you to lock in today's tuition rates for future college costs. When your child is ready for college, the TTPF will pay for their tuition and mandatory fees at any public college or university in Texas.

Eligibility

To be eligible for the TTPF, your child must be a Texas resident and under the age of 18. You do not have to be a Texas resident to purchase a TTPF account for a child who is a Texas resident.

Contributions

You can contribute to a TTPF account in a lump sum or through monthly payments. The minimum contribution amount is $25. There is no maximum contribution limit.

Investment Options

The TTPF offers two investment options:

• Guaranteed Plan: This option guarantees that your investment will grow at a rate equal to the average annual increase in tuition at Texas public colleges and universities.
• Growth Plan: This option invests your contributions in a portfolio of stocks and bonds. The potential return on investment is higher than the Guaranteed Plan, but there is also more risk.

Withdrawals

You can withdraw money from a TTPF account at any time. However, if you withdraw money before your child reaches college age, you will be subject to a penalty. The penalty is 10% of the amount withdrawn.

Benefits

• Lock in today's tuition rates: The TTPF allows you to lock in today's tuition rates for future college costs. This can save you a significant amount of money if tuition rates continue to rise.
• Tax-advantaged savings: Contributions to a TTPF account grow tax-free. Withdrawals for qualified education expenses are also tax-free.
• Flexibility: You can contribute to a TTPF account in a lump sum or through monthly payments. There is no minimum contribution amount, and you can withdraw money from the account at any time.

Texas College Savings Plan (TCSP)

Overview

The Texas College Savings Plan (TCSP) is a 529 college savings plan that allows you to save for college costs in a tax-advantaged account. You can invest your contributions in a variety of investment options, and earnings grow tax-free. Withdrawals for qualified education expenses are also tax-free.

Eligibility

There are no residency requirements for the TCSP. Anyone can open an account for a child or themselves.

Contributions

You can contribute to a TCSP account in a lump sum or through monthly payments. The minimum contribution amount is $25. There is a maximum annual contribution limit of $50,000 per beneficiary.

Investment Options

The TCSP offers a wide range of investment options, including:

• Age-based portfolios: These portfolios automatically adjust their asset allocation as your child gets closer to college age.
• Target-date portfolios: These portfolios are designed to meet the specific needs of investors who are saving for college at a particular date.
• Index funds: These funds track the performance of a specific market index, such as the S&P 500.
• Individual stocks and bonds: You can also invest in individual stocks and bonds through the TCSP.

Withdrawals

You can withdraw money from a TCSP account at any time. However, if you withdraw money before your child reaches college age, you will be subject to a penalty. The penalty is 10% of the amount withdrawn.

Benefits

• Tax-advantaged savings: Contributions to a TCSP account grow tax-free. Withdrawals for qualified education expenses are also tax-free.
• Flexibility: You can contribute to a TCSP account in a lump sum or through monthly payments. You can also choose from a variety of investment options.
• State tax deduction: Texas residents can deduct up to $2,500 per year in contributions to a TCSP account from their state income taxes.

Which Plan is Right for You?

The best 529 plan for you depends on your individual circumstances. If you want to lock in today's tuition rates, the TTPF is a good option. If you want more flexibility and investment options, the TCSP is a better choice.

Common Mistakes to Avoid

• Not starting early. The sooner you start saving for college, the more time your money has to grow.
• Not contributing enough. The more you contribute to a 529 plan, the more money your child will have for college.
• Taking on too much risk. Don't invest more money than you can afford to lose.
• Withdrawing money early. If you withdraw money from a 529 plan before your child reaches college age, you will be subject to a penalty.

Tips and Tricks

• Consider automatic contributions. Setting up automatic contributions to your 529 plan is a great way to make sure you're saving on a regular basis.
• Get a state tax deduction. Texas residents can deduct up to $2,500 per year in contributions to a TCSP account from their state income taxes.
• Shop around for the best plan. There are many different 529 plans on the market. Shop around to find the best plan for your needs.