Saving for College: GET or 529
The end of the year often means gift giving, and many families consider contributing to savings for a child’s future college education as a gift. A variety of savings tools are available to save for minors: traditional options include a basic Uniform Transfers to Minors account (UTMA) or creating a trust for the benefit of one or more children or grandchildren, with provisions tailored to encourage educational pursuits. For several years, Washington residents have been able to purchase 529 Plans through other states, or participate in the Guaranteed Education Tuition (GET) Program. The GET Program provides the ability to pre-pay toward a college education in any state by purchasing units that can be used to pay for future tuition at public or private colleges and universities. The price of GET units has historically been based on the highest tuition charged at the “priciest” Washington public university. GET unit prices generally increased year to year based on actual increases to tuition and were designed to purchase tuition at today’s rate that could be redeemed in the future, when presumably tuition would be higher.
In 2015, the Washington legislature passed the College Affordability Program, which generally lowered tuition at state colleges, tied future tuition increases to average wage growth and called for Washington to create its own 529 College Savings Plan. Because the College Affordability Program affects assumptions about tuition increases that the GET Program is based on, the GET Program suspended creation of new accounts and most unit purchases for two years to review the Program for feasibility. In September 2016, it was announced that the GET Program will stay open and begin accepting new accounts and unit purchases in 2017.
There are some key differences between GET and 529 accounts. A GET account owner does not choose particular investments; rather, units are purchased at a set price and can be redeemed in the future toward college tuition. A 529 account allows selection of particular investments, which might include mutual funds invested in stocks or bonds, or a combination thereof. A 529 account allows its owner to create a more tailored portfolio of investments suited to a particular risk tolerance and investment style.
Both GET and 529 accounts offer tax-deferred growth to encourage saving for college. Generally, both types of accounts are not taxed on income earned or increases in account value year to year, and withdrawals for qualified education expenses are also generally income tax free to the student beneficiary.
Since a new Washington-specific 529 Plan is forthcoming, current GET account holders may choose to withdraw existing GET funds without program penalties through September 1, 2017, or until 60 days after a new 529 college savings plan opens (whichever is later). Account holders should be aware, however, that federal taxes and penalties may still apply to any account gains if refunds are not deposited into another qualified 529 Plan within 60 days of withdrawal. Be sure to work with your investment advisor to select a college savings option.
To discuss issues specific to your planning, contact one of the Stokes Lawrence Estate Planning attorneys.