If you are a Georgia resident who plans to put a child through college, it's important to learn about the tax benefits available by contributing to the state's 529 college savings program, also known as the Path2College 529 Plan.
Through this tax-advantaged plan, family members and friends can contribute to a child's college fund and get a tax benefit for doing so. Over the years, with regular contributions and compound interest, the plan can grow significantly to provide for the child's educational expenses. So, if you save enough through this plan, you'll hopefully have less stress at admissions time about applying for financial aid or searching for scholarships.
Advantages of the Path2College 529 Plan
Your investments in a Path2College account grows free of both federal and Georgia state income taxes.
The state also offers a sizable tax deduction for residents who contribute to its Path2College 529 plan. Contributors can deduct $4,000 per beneficiary and $8,000 per beneficiary for joint filers.
Georgia residents only receive a deduction for contributing to the Georgia Section 529 plan, not plans from other states.
You also don't need to itemize deductions in order to claim the money. In other words, even if you cannot deduct anything else, you're still able to subtract your contributions to the plan from your gross income on your Georgia personal income tax return.
Residents wrestling with the use of the Georgia Section 529 plan versus other college savings vehicles need to factor in the potential savings of this state income tax deduction. Given that the top income tax bracket for Georgia residents is 5.75%, each contribution of $4,000 could save up to $230 at tax time. In other words, receiving the deduction could be similar to receiving a 5.75% bonus on the amount contributed.
Contributing to a Path2College 529 Plan
It's simple to open a 529 account online—you only need $25 to start, or through a payroll deduction option, with a minimum contribution of $15 per paycheck.
The maximum contribution limit per beneficiary for the Path2College 529 Plan is $235,000.
Georgia's state-sold plan offers the following contribution options:
- Age-Based: This option takes into account the beneficiary’s current age and the number of years before the beneficiary turns 18 or is expected to start college. This option is good for people who want a simple, all-in-one portfolio option.
- Guaranteed: This investment option seeks to preserve capital and provide a stable return. These options may be good for those with shorter timeframes, or those who have lower risk tolerance.
- Multi-Fund: These investment options are good for account owners who prefer to select an investment portfolio to target specific asset allocation. Each multi-fund investment portfolio is allocated to multiple underlying funds and/or a funding agreement and has a different investment objective and investment strategy.
- Single-Fund: These investment options are each invested solely in either the shares of a single Underlying Fund or a Funding Agreement. This option may be good for people who are interested in specific single funds such as equity index, money market, or social fund options.
Enrollment Year Investment Portfolio
An Enrollment Year Investment Portfolio bases its investment mix on the date the student is projected to need the money to pay for their qualified education expenses. The risk level automatically shifts from aggressive to conservative as the enrollment year approaches.
Not all students enroll in college at 18 years old, or you may be saving for K-12 tuition expenses. You can select the Enrollment Year Investment Portfolio that corresponds to your student’s expected future year of enrollment or one that best meets your specific investment objective.
Static Investment Portfolio
These investment portfolios provide account owners with the opportunity to select an investment portfolio for its specific asset allocation. Each Static Investment Portfolio is allocated to multiple underlying funds and/or a funding agreement. It has a different investment objective and investment strategy.
The allocations in a Static Investment Portfolio don't change automatically as the beneficiary ages as they do in Managed Investment Portfolios.
Principal Plus Interest Portfolio
The Principal Plus Interest Portfolio seeks to preserve capital and provide a stable return. This portfolio may be good for individuals with a lower risk tolerance or a shorter time frame to save.
Using Your Accrued 529 Funds
All withdrawals used for qualified higher education expenses are exempt from federal and Georgia income taxes. Qualified expenses include not just tuition, but also certain room and board costs, computers and related technology expenses, books, fees, and equipment.
You can use Path2College 529 Plan funds at any accredited college or university in the United States, and at many located outside the U.S. The money in the account can be used for qualified education expenses.
As with most states, any deductions from your 529 plan that you do not use for higher education expenses may be subject to both state and federal income tax.