How Does the Virginia 529 Education Savings Plan Work?
Tax incentives help you save more
Virginia offers a 529 education savings plan, called Virginia529, that comes with some great tax incentives to help you save more for your kids' education — both college and K-12. The 529 savings plan was put in place to help families save for college or post-secondary tuition and experience less stress at admissions time with regard to applying for financial aid or searching for scholarships.
Benefits of the Virginia 529 Plan
Earnings from Virginia529 accounts can grow free of federal taxes. Over the years, with regular contributions and compound interest, the plans can grow significantly to provide for a child's educational expenses.
The funds can be withdrawn to pay for tuition, room and board, and other higher education expenses, such as textbooks or supplies, free of income tax. As of January 2018, you can also use up to $10,000 of the Virginia529 fund each year for qualifying K-12 school tuition. Funds can be used at eligible educational institutions not only in Virginia but around the world.
Through these tax-deductible plans, family members and friends can contribute to a child's college fund and get a tax benefit for doing so. Virginia529 account contributors who are Virginia taxpayers may deduct contributions of up to $4,000 per account per year on their state income tax returns with an unlimited carry-forward to future tax years, subject to certain restrictions.
For example, if you're a Virginia taxpayer and you contribute $5,000 to a Virginia529 savings plan in one year, you could deduct $4,000 on your tax return for that year and $1,000 on your tax return for the following year. People who are 70 years old and older may deduct the entire amount contributed to a Virginia529 account in one year.
Virginia 529 Plan Options
Virginia offers the following three 529 plan options:
Invest529: This plan is offered directly from the state. Virginia's Invest529 state-administered 529 savings program features a mix of different mutual funds and separately managed accounts in its age-based, static, and FDIC-insured portfolio options. Invest529 is consistently ranked among the top 529 plans by independent sources due to its low fees, tax advantages, and diverse investment options.
Prepaid529: Virginia also offers a pre-paid 529 tuition program. It allows Virginia residents to pay ahead of time, per semester, for in-state tuition and mandatory fees at two- and four-year Virginia public colleges or universities. The program offers flexible payment plans and cost calculators to determine a plan that works for you.
CollegeAmerica: In partnership with American Funds, one of the oldest and largest mutual fund companies in the country, this plan is managed and sold by advisors and has dozens of investment options, including an age-based investment strategy that gets more conservative as the beneficiary gets closer to college.
Frequently Asked Questions
Are There Costs to Start Investing?
Both options require a small application fee before an account can be opened. These plans have low minimums, and you can contribute very small amounts each month.
What Is the Maximum I Can Contribute to a Virginia 529 Plan?
Many families choose to enroll in multiple Virginia529 programs. Account values across all programs may not exceed $500,000 per beneficiary.
Does the Student Have to Go to School in Virginia?
With the exception of the Prepaid529 plan, the beneficiary can use the money from a Virginia529 plan to attend any qualified educational institution in the world.
What If My Student Doesn't Go to College?
If your child decides to take a break after high school before going on to college, the 529 savings plan remains intact. There is no age restriction on the plan. If a student decides in a few years to go to school, then they can make withdrawals on the account for those education costs. If your child decides they're not going to college at all, you can switch the beneficiary to another person, such as a niece, nephew or friend. You also have the option of withdrawing the money yourself, but that can come with hefty fines.
This is a decision that should be made with care because the money you withdraw for non-educational expenses is subject to a steep penalty and is taxable as income.