For Indiana’s public universities, the average annual tuition and fees are $9,502 (in-state) and $29,965 (out-of-state). The average cost of room and board is $10,846. Indiana’s CollegeChoice 529 Savings Plan offers additional benefits, including tax credits for contributors. Effective January 1, 2018, these plans and tax credits began including contributions intended for K-12 tuition in addition to those for higher education.
Benefits of 529 Plans
With a traditional Section 529 plan, families can begin contributing to a child’s educational fund as soon as they are born. Through regular (tax-free) contributions from parents, family members, and friends, the account grows over time, and there is ideally less stress (and prospective student debt) when choosing a school, applying for financial aid, or searching for scholarships.
Benefits Specific to Indiana
In 2018, 17 states (including Indiana) introduced legislation allowing taxpayers to use their Section 529 plans to pay for tuition at private K-12 institutions. Previously, “qualified withdrawals” from Section 529 plans only included expenses related to higher education. Taxpayers in Indiana who contribute to the state’s CollegeChoice 529 Savings Plan can get the lesser of a tax credit on 20% back on their contribution or a $1,000 tax credit. Starting in January 2019 and later, taxpayers were also permitted to claim this tax credit to fund K-12 education.
Indiana’s CollegeChoice 529 Savings Plan Options
The state of Indiana offers several options to save for a child’s education and vest tax benefits. The Direct Savings Plan is provided directly from the state. It offers an age-based option and several static options. This plan has higher fees than the national average, but it has an established history of good returns. The Advisor 529 Plan is sold exclusively through an advisor, and includes many different choices. If you choose an age-based option, it starts out aggressively, with most of the plan’s investments in stocks. As the child ages and gets closer to college, the investments get more conservative to protect the money contributed. The advisor plan does have fairly high fees, but they may be balanced by the tax credit and potentially strong returns.
Plan Restrictions
The minimum contribution to get started with a CollegeChoice 529 Savings Plan is just $10, allowing families near the poverty line to get started with a modest investment. Anyone over the age of 18, who is either a U.S. citizen or legal resident, can make contributions to a plan, even if they live outside of the state. Contributions are capped at $450,000 per beneficiary across all their accounts. Indiana does not have age restrictions, nor does it require a student to attend college within a certain amount of years after graduation. If a student decides to work for a few years before going to school, the state’s 529 plans will stay intact for their eventual benefit. If a student decides they want to discontinue their formal education altogether, these savings can still be put to good, academic use. The plan’s beneficiary can be changed at any time, thus redirecting money toward the primary, secondary, or higher education costs of another individual. But remember, money withdrawn from such an account must be used for qualified educational expenses, or you’ll face substantial tax penalties.
