(Updated May 14, 2021)
Washington D.C. residents have long been underserved and underrepresented. While we don’t have any updates on representation, we do have good news about college saving options for DC residents, and associated tax benefits.
In 2017, Washington D.C.’s College 529 Plan was revamped to add stronger investment choices and reduce fees. This is a great saving recipe if you’re a D.C. resident saving for college and seeking to gain D.C. income tax deductions, too.
DC 529 College Savings Investment Choices
The new plan offers three different types of investment options:
Year of College Enrollment Portfolios
Various portfolios are offered, containing appropriate investment positioning based upon the anticipated year a child will enter college. The portfolios are more aggressive for younger children, and become more conservative as children near age 18 and head off to college.
Individual Portfolios
Accountholders can also create custom investment portfolios, utilizing a mixture of index and actively managed funds, including socially responsible choices. There are eight single-strategy portfolios in total:
- U.S. Intermediate-Term Bond Index Portfolio
- Intermediate-Term Bond Portfolio
- U.S. Total Stock Market Index Portfolio
- U.S. Socially Responsible Equity Portfolio
- U.S. Large Cap Equity Portfolio
- Non-U.S. Total Stock Market Index Portfolio
- U.S. Small Cap Equity Portfolio
- Non-U.S. Socially Responsible Equity Portfolio
Principal Protected Portfolios
For those less inclined to invest, the new plan also offers an option akin to a savings account, with a modest interest rate, the Principal Protected Portfolio.
Lower Costs and Fees
The new plan is specifically designed to reduce fees. Depending on the investment options you select, the annual fees based upon the assets held in the plan will range from 0.15% to 0.74%. (For example, if you invest $1,000, your annual asset-based fee could range from $1.50 to $7.40.) The plan also charges an annual account maintenance fee of $10 for D.C. residents and $15 for non-D.C. residents.
Washington, D.C. Tax Incentives
While the DC Section 529 plan’s investment options are improving, and its fees are decreasing, associated tax advantages remain the same. Nonetheless, they still offer an extra investment incentive which, remember, isn’t limited to parents only; grandparents and others can establish and contribute to a 529 plan for a cherished child.
As a recap, each taxpayer can deduct up to $4,000 per year, regardless of the number of beneficiaries. Married couples filing jointly can deduct up to $8,000 (if each taxpayer owns an account). Payments in excess of $4,000 per taxpayer can be deducted from D.C. income in future years, for up to 5 years.
SageVest Wealth Management is committed to helping you and your family plan for important life events, and saving for college is often top of the list. We can help you evaluate your college savings options, thereby supporting your goals for the next generation’s future as part of your broader wealth management objectives. Please contact us for more information if you’re interested in supporting your child, grandchild, niece, nephew or other family member’s academic success.
