Georgia 529 Plan Basics

While we are providing general information about the state’s 529 plan, please consult the Plan Description or Disclosure Booklet and Participation Agreement for more detailed information and facts about the plan.

A 529 plan is an education savings plan that encourages education savings for qualified higher education expenses – college, vocational, or other post-secondary learning.

Unlike a traditional savings account or bank account, your money grows tax-deferred in a 529 account and qualified distributions are federal tax and state tax free.

Different states have different state plans with different investment options and different benefits and tax advantages. You can enroll in any state’s 529 plan that accepts non-resident enrollment. 529 plan funds can be applied to in-state schools or out of state schools, public or private institutions. 529 plan accounts can be linked the Upromise rewards service. Earn an extra $25 bonus when you connect a 529 account to your Upromise profile.

Georgia’s state 529 plan is the Georgia Path2College 529 Plan. TIAA-CREF Tuition Financing, Inc. is the program manager. The Path2College Plan features sixteen investment portfolio options – 10 year-of-enrollment portfolios and six static investment options including a guaranteed option with a minimum effective annual interest rate between 1% and 3% and as declared each January.

You can visit the plan website at www.path2college529.com for more information.

What are some tax benefits of a 529 plan?

Funds you invest in a 529 plan grow tax-deferred. And funds that the student eventually withdraws from the plan towards qualified educational costs are free from federal taxes.

A common misconception is that these 529 plan assets will disqualify your child from financial aid. On the contrary, 529 plan funds are treated more favorably in the financial aid formula than other savings in your child’s name through a custodial account such as an UTMA/UGMA. This is because assets in a child’s 529 plan belong to the parent not child, and FAFSA (Free Application for Federal Student Aid) gives preferential tax treatment to assets belonging to a student’s parent versus the student.

If your child is an Einstein or football star, and manages to score a free ride to school, you can still repurpose those funds. You can take out an amount equal to the scholarship fund amount from the 529 plan without incurring the 10% penalty tax fee you’d normally have to pay on funds not going to qualified education costs. (You would have to pay regular ordinary income taxes on earnings, but there would be no penalty. Alternatively, you can leave the funds in a 529 plan to be used at a later date by this beneficiary or a direct relative of the original beneficiary.)

And for many, a 529 plan can be used to transfer wealth. Contributing to a 529 plan lets grandparents or other contributors reduce the size of their taxable estate while helping them fund a grandchild’s or family member’s education. It’s even possible to make five years worth of contributions in a single year, up to $75,000 (or $150,000 for married couples) and still get the gift tax exclusion.

Is a 529 plan tax deductible in the state of Georgia?

You can claim a state tax deduction on contributions of up to $4,000 a year as a single filer and of up to $8,000 as a joint filer. Contributions above this amount cannot be deducted and Georgia does not support carry forward. Speak with a qualified professional for specific questions about your tax return.

What happens to a Georgia 529 Plan if not used?

There is no time in which the funds within a Georgia 529 plan need to be withdrawn. Unused funds can remain in the account and continue to grow tax-deferred.The account owner may also choose to change the beneficiary, without penalty, to an individual with a social security number who is a member of the original beneficiary’s family and a United States citizen. This is not limited to immediate family members; funds can be transferred to cousins, nieces, nephews, and other close relatives. The account owner can close the account if not used, but funds in the account will be subject to federal and state income tax as well as a 10% penalty on the account earnings.

And as outlined earlier in this article, 529 plans allow the account owner to withdraw the amount a beneficiary receives in scholarships without incurring the 10% penalty.

Can a Georgia 529 Plan lose money?

Yes, a 529 plan is an investment plan with different types of investment options. The investment options offer different levels of market risk. Speak with a qualified financial advisor about different investment portfolio options.

While Georgia does not offer an FDIC insured product, it does offer the Principal Plus Interest Portfolio. The assets in this Investment Portfolio are allocated to a funding agreement issued by TIAA-CREF Life, which is an affiliate of TFI, to the Board as the policyholder on behalf of the Plan. The funding agreement provides a minimum guaranteed rate of return on the amounts allocated to it by the Investment Portfolio. The minimum effective annual interest rate will be neither less than 1% nor greater than 3% at any time.

Do I need a Georgia 529 Plan for every child?

You can only have one named beneficiary on a Georgia 529 plan. For this reason, it is best to have a different 529 plan for each child. If you use one account for multiple children, you might lose tax benefits. It is also possible that certain investment strategies work better for one child versus another. However, one beneficiary can have multiple accounts in their name, and you can open multiple plans for multiple beneficiaries.

Can Georgia 529 plan funds be used to pay off student loans, apprenticeships, and K-12 private schools?

K-12 withdrawals are limited to $10,000 per year for K-12 tuition. Apprenticeship programs must be registered and certified with the Secretary of Labor under the National Apprenticeship Act. Student loan repayment subject to a lifetime limit of $10,000 per individual when using a 529 plan.

Withdrawals for tuition expenses at a public, private or religious elementary, middle, or high school, registered apprenticeship programs, and student loans can be withdrawn free from federal and Georgia income tax. If you are not a Georgia taxpayer, these withdrawals may include recapture of tax deduction, state income tax as well as penalties. You should talk to a qualified professional about how tax provisions affect your circumstances.

How do financial aid and scholarships affect a Georgia 529 plan?

A 529 plan can affect financial aid, but the impact is dependent on the account owner and their tax situation, not the beneficiary.

If the account is held by the parent or guardian of the student, funds within are considered parental assets. The Expected Family Contribution (EFC) calculation for parent assets is a maximum of only 5.64% versus 20% for the students assets.However, if the 529 plan is held by a grandparent or extended family member, while the assets are not taken into account for the FAFSA EFC, distributions from these accounts qualify as student income, which is assessed at 50%.

529 accounts do not affect merit-based scholarships. Other scholarships may depend based on the school.

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529 Plan Basics by State

Check out these College Savings: 529 Plan Basics by State

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