Saving for College in Texas
Texas law requires all Texas two- or four-year public colleges and universities to accept Texas Tuition Promise Fund® Tuition Units: Tuition Units are the unit of measure used to purchase prepaid tuition. Generally, one unit represents one percent of the cost of tuition and required fees for 30 semester hours at the school that most closely matches the unit’s pricing structure. as payment for the applicable portion of tuition and Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. .
Your Benficiary: The person designated by the Purchaser under a Prepaid Tuition Contract as the person for whom undergraduate tuition and required fees will be paid to an Eligible Educational Institution when authorized by the Purchaser. will be treated as a Texas resident for the portion of the tuition and Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. covered by the Plan even if he or she lives out-of-state at the time of enrollment. Any portion not paid for by the redemption of Tuition Units: Tuition Units are the unit of measure used to purchase prepaid tuition. Generally, one unit represents one percent of the cost of tuition and required fees for 30 semester hours at the school that most closely matches the unit’s pricing structure. must be paid at the school’s then-current tuition rate based on the then-current Residency: Residency means domicile within the State of Texas at the time the Purchaser enters into a Contract. status of the Beneficiary.
Assets in your account are not considered in determining eligibility for Texas state-funded financial aid.
Two Texas 529 Plans
Texas offers two types of 529 Plan: A 529 plan is an education savings plan operated by a state or an educational institution and designed to help families set aside funds for college. It is named after Section 529 of the internal revenue code, which authorized these types of tax-advantaged savings plans in 1996. Earnings on 529 plans are tax-free if used for qualified higher education expenses. (Unqualified withdrawals may be taxable as ordinary income and subject to a 10% federal tax penalty.) The Pension Protection Act of 2006 made the tax-free character of 529s a permanent part of federal law. – prepaid and savings. The prepaid tuition plan covers only tuition and Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. . The savings plans can be used to pay qualified educational costs not covered by the prepaid plan such as books, lab fees, and room and board.
You have the flexibility to choose one type of plan or combine both plans into a program designed to work best for your future graduate.
Each plan offers several investment and payment options to fit your needs.
1. The Texas Tuition Promise Fund® is a Texas prepaid plan that allows Texans to lock in tomorrow’s Texas public tuition and Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. at today’s prices.
The Plan offers:
- An opportunity to prepay all or part of undergraduate resident tuition and Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. for a college education at most Texas two- or four-year Texas public colleges and universities, excluding medical and dental schools at today’s rates.
- A chance to start saving for a college education from a child’s birth.
- The flexibility to apply the Transfer Value: Transfer value is limited to the lesser of: 1) the costs the unit would cover at a Texas public college; or, 2) the price paid for the unit, plus or minus the Plan’s net investment earnings or losses on that amount. Transfer value does not include any state-provided or procured matching contributions or earnings thereon. of your tuition units toward the Beneficiary’s cost of tuition and schoolwide Required Fees: Required fees are only those that must be paid by all students as a condition of enrollment in the college or university. They do not include course-specific fees such as equipment usage or lab fees, or fees related to your major or year of study. at a medical or dental institution, private or out-of-state college or university, career school or registered apprenticeship program where tuition and fees are not locked in at the time you purchase your units.
- The flexibility to change the
Benficiary:
The person designated by the Purchaser under a Prepaid Tuition Contract as the person for whom undergraduate tuition and required fees will be paid to an Eligible Educational Institution when authorized by the Purchaser.
to another
:
or
Request a Refund:
For all units held at least three years (and for contracts cancelled due to the Beneficiary’s death, disability, receipt of scholarship or admission to a U.S. Military Academy), the Purchaser will receive the Refund Value, which is an amount equal to the price you paid for the unit plus or minus adjusted net investment earnings or losses on that amount, with the earnings rate set annually by the Board at a rate that is up to 2% less than the actual net earnings, is capped at 5%, and is net of any fees due and payable. The earnings portion of a Refund is also subject to federal income taxes plus a 10% federal tax as well as any state or local taxes that may apply. Earnings may only be paid on a refund subject to the actuarial soundness of the fund. Refund Value does not include any state-provided or procured matching contributions or earnings thereon.
For units that do not meet the three-year holding period requirement, the Purchaser will receive the Reduced Refund Value. It will be limited to the lesser of (1) the price you paid for the unit, or (2) the price you paid for the unit, plus or minus net investment earnings or losses on that amount, and is net of any fees due and payable. This means the Reduced Refund Value will not include any positive net earnings, but can be less than the purchase price if there have been periods of negative returns in the market. Reduced Refund Value does not include any state-provided or procured matching contributions or earnings thereon. . The new Beneficiary must be a Texas resident or the child of a parent who is both the Purchaser: The person who establishes the Contract for a specified Beneficiary. There can only be one Purchaser for each Contract. The Purchaser is responsible for making payments in a timely manner and is the only person who may direct or receive refunds, or may direct rollovers, Contract changes, and changes in the designated Beneficiary except that the Contract may be cancelled or modified by the Plan. Friends and family who contribute to another person’s account are not the Purchaser and may not prevent, direct or receive refunds, and may not direct rollovers, contract changes, or changes in the designated Beneficiary. and a Texas Resident.
2. The direct-sold Texas College Savings Plan® and advisor-sold LoneStar 529 Plan® are 529 college savings plans administered by the state of Texas that offer a flexible and tax-advantaged way to save for a child’s college education, including tuition, fees, room and board, and textbooks and registered apprenticeship programs. The Plan’s benefits include:
- A choice of savings options;
- Any earnings grow tax free; and
- Withdrawals are tax-free as long as the withdrawal is used for Qualified Higher Education Expenses: Qualified Higher Education Expenses include tuition; fees; the cost of books, supplies and equipment required for the enrollment and attendance at an eligible educational institution; and certain room and board expenses. Qualified expenses also include certain additional enrollment and attendant costs for special needs beneficiaries. , including certain books, room and board, registered apprenticeship programs, student loan repayment, K-12 tuition and other qualified expenses. See IRS Publication 970 for certain limits that apply.
Recent tax reform legislation changes allowing for payment of K-12 tuition were on a federal level, and the tax consequences of using 529 plans for elementary or secondary education tuition expenses will vary depending on state law and may include recapture of tax deductions received from the original state as well as penalties. The account owner should consult with a tax or legal advisor before using the plan for K-12 tuition.
Finally, the LoneStar 529 Plan® is a college savings plan for those who want the advice of an investment professional. Please note that a purchase through an investment representative will incur additional fees.