New York 529 College Savings Plans

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Contributor, Benzinga
May 23, 2024

New York offers two 529 College Savings Plans: the Direct Plan for direct investment and the Advisor-Guided Plan for access to financial advisors. Both plans offer investment options and flexibility for qualified education expenses.

Planning for your child's future education can be a challenging task for many parents. With the rising costs of tuition and the uncertainty of the job market, it can be overwhelming to figure out how to best prepare for your child's future academic endeavors.

That's where 529 plans come in handy. A 529 Plan is a college savings plan offered by a state or state agency. This tax-advantaged investment account is specifically designed to save for future education costs, including tuition, room and board, fees, books and other expenses. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution.

If you live in the state of New York, you can choose from these two New York 529 College Savings Plans available: the Direct Plan and the Advisor-Guided Plan. Read on to find out which plan is best for you.

The New York 529 Direct Plan

The New York 529 Direct Plan offers college savers a comprehensive swath of portfolios that certainly cover a broad spectrum of performance, expense ratios and other advantages, all with the goal of arming you and your child(ren) with the best possible scenario when going off to college.

Ascensus and Vanguard

The program manager for the NY 529 Direct Plan is Ascensus Broker Dealer Services, Inc. It’s a part of Ascensus College Savings, a provider of administrative services for these types of plans. Vanguard happens to be the investment manager for the Direct Plan and is one of the leading investment management firms in the world.

Who Can Open a New York 529 Direct Plan?

Anyone can open a plan, no matter how old you are or what your income is, or whether you’re a resident of New York or not. (However, those out-of-staters might want to check into their own home state’s 529 plans to make sure they’re not missing out on tax benefits solely available for investments in that state’s 529 plan.)

The other requirement is that you must be a U.S. citizen or resident alien with a verified permanent U.S. address and valid Social Security number or other taxpayer identification number.

How to Open a New York 529 College Savings Direct Plan

It doesn’t take long to get a plan rolling, and the New York 529 College Savings Direct Plan Account website recommends having the following at the ready when you’re ready to open an account:

  • Information about yourself, such as address, Social Security number, etc.
  • Information about your successor, in the event of your death.
  • Details about your beneficiary or beneficiaries (birthdate, Social Security number, etc.)
  • Investments in mind that you plan to tackle.
  • Your bank account number.
  • Payroll deduction information.

New York 529 Direct Plan Fees

Vanguard has some of the lowest fees out there, and this plan is no exception. The plan charges a total annual asset-based management fee of 0.12% of account assets. That means for every $1,000 you invest, you'll pay $1.20 in fees per year.

There are no advisor fees, sales commissions or annual account fees, like those you may find in other plans. The New York Direct Plan also doesn’t charge additional fees for individuals who reside outside of New York.

Tax Benefits of New York 529 Direct Plan

The Direct Plan tax benefits include the following, which are pretty common for 529 plans. The differences that may exist between this plan and others may be the amount of state tax deductions:

  • You won’t pay income tax on earnings; the money grows deferred from federal and state income taxes.
  • You can make tax-free withdrawals when you use the money to pay for qualified educational expenses.
  • If you’re a New York taxpayer, you may be able to deduct up to $5,000 ($10,000 if you’re married filing jointly) of your contributions.
  • You can contribute up to $15,000 per year without having to pay federal gift taxes.

Performance and Investment Options

Past performance is not a guarantee of future performance, just as it is with all investments. The NY 529 Direct Plan has a full list of portfolio names at its command, which covers an entire spectrum of aggressive to conservative investments. They include the following:

  • Aggressive Growth Portfolio
  • Developed Markets Index Portfolio
  • Mid-Cap Stock Index Portfolio
  • Growth Stock Index Portfolio
  • Value Stock Index Portfolio
  • Small-Cap Stock Index Portfolio
  • Social Index Portfolio
  • Moderate Growth Portfolio
  • Conservative Growth Portfolio
  • Growth Portfolio
  • Bond Market Index Portfolio
  • Inflation-Protected Securities Portfolio
  • Income Portfolio
  • Interest Accumulation Portfolio

For a glimpse of performance for each portfolio, check out the full snapshot.

Drawbacks of New York 529 College Savings Direct Plan

We’ve mentioned a lot of positives thus far regarding the New York 529 Direct Plan, but there may be negatives, and most of them go along with potential drawbacks for any 529 plan. One major drawback includes youngsters’ financial aid eligibility, which is directly impacted when there is money in a 529 plan. It’s better to have the money in the parents’ name rather than the students’, as the student assessment rate on the FAFSA is high, at 20 percent. For parents, it’s assessed at 5.64 percent.

Another drawback is that while your money can be withdrawn for any reason if it’s not demonstrated as a qualified educational expense, withdrawals will be subject to income taxes and a 10 percent penalty.

The New York 529 Advisor-Guided College Savings Plan

The New York’s 529 Advisor-Guided College Savings Plan is designed for parents who want professional guidance and assistance in managing their child’s college savings fund. By working with a financial advisor, you can benefit from personalized investment advice and tailored recommendations based on your financial goals and risk tolerance.

Ascensus and J.P. Morgan

The NY 529 Advisor-Guided College Savings Plan is managed by Ascensus College Savings, with J.P. Morgan Asset Management as the investment manager and distributor. The plan provides families with access to a top 529 plan administrator and the investment expertise of a highly respected financial institution.

Who can open a New York 529 Advisor-Guided College Savings Plan?

Unlike other 529 plans, the NY 529 Advisor-Guided plan is only available through financial advisors. These advisors have a wealth of knowledge and experience in helping families plan for their financial futures, including saving for higher education expenses. By working with a financial advisor, investors can receive personalized guidance on how to best utilize the 529 plan to meet their specific goals.

New York 529 Advisor-Guided Plan Fees

The fees for the New York 529 Advisor-Guided Plan can vary depending on the investments chosen and the specific advisor managing the account. Here are some common fees associated with this plan: program management fees, investment management fees and advisor fees.

Tax Benefits of New York 529 Advisor-Guided Plan

The NY 529 Advisor-Guided Plan offers a variety of tax benefits that can help you maximize your savings and reach your financial goals.

  • New York taxpayers can deduct up to $5,000 ($10,000 if married filing jointly) in contributions from their income taxes each year.
  • Contributions to your account grow tax-deferred, with earnings not subject to income tax as long as the funds stay in the account.
  • Withdrawals made for qualified education expenses, such as tuition, books, and room and board, are also tax-free.

Investment Options

Your advisor can help you select from three approaches to access funds.

  • Age-based portfolio: These are based on an individual's age, with younger investors taking on more risk and older investors being more conservative.
  • Asset allocation portfolios: These are designed to balance risk and return by diversifying investments across different asset classes such as stocks, bonds and cash.
  • Individual portfolios: These are tailored to individual investors' specific goals, risk tolerance and time horizon, taking into account their unique financial situation and preferences.

Drawbacks of New York 529 Advisor-Guided Plan

While there are many benefits to this plan, there are also several drawbacks that families should be aware of before investing in it.

One of the main drawbacks of the New York 529 Advisor-Guided Plan is the fees associated with it. The plan includes an annual program management fee, as well as other investment fees that can add up over time. These fees can eat into the returns on your investment and reduce the amount of money available for college expenses.

Another drawback of this plan is the limited investment options available. While the plan does offer a variety of investment portfolios to choose from, these options are still limited compared to other 529 plans. This can make it challenging for investors to find the right mix of investments to meet their financial goals and risk tolerance.

Additionally, the New York 529 Advisor-Guided Plan may not be the best option for families who want more control over their investments. With this plan, families rely on the guidance of a financial advisor to make investment decisions. This can be a drawback for investors who prefer to have more hands-on control over their college savings.

Why Use a 529 Plan for College Savings?

There are definitely reasons to use a 529 plan as a college savings vehicle, and those include:

  • Though contributions aren’t deductible, they grow tax-free and are not taxed when the money is taken out for college.
  • States offer tax breaks for specific plans (some don’t even require that the plan is from their state).
  • They’re not run like custodial accounts, where the child takes ownership of assets when he/she reaches legal age.
  • You can be as hands-on or as hands-off as you’d like. Investment management can be completely left up to the investment company, or you can choose your own investments and manage them yourself.
  • Anyone can take advantage of a 529 plan.
  • You can open a plan for more than one beneficiary, as long as all beneficiaries are U.S. citizens or resident aliens with a valid Social Security number or other taxpayer ID number.

Final thoughts

Obviously, market performance will fluctuate over the course of 18 years, and returns are never guaranteed, so that’s why you’re well-advised to start funds aggressively and then morph into conservative funds by the time your child closer to college age.

Saving early matters (as in, once your child is born) because of compound interest. The more you let compound interest take hold of your finances, the better off you’ll be on returns. An example on Vanguard’s website gives an excellent overview of the miracle of compound interest:

Imagine you saved $25 a week for 18 years and kept it in a bank account earning 1% annual interest. When it's time for college, you'd have about $25,750—the $23,400 you put in and about $2,350 in interest.

Now, imagine you invested the money and earned 6% a year. After 18 years, you'd have about $42,600 instead.

That's almost $17,000 in additional money your child can use for college!

Related content: BEST WAY TO SAVE FOR COLLEGE

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About Melissa Brock

Melissa Brock is a versatile freelance writer and financial editor, recognized for her expertise in higher education, personal finance, and investing. With over a decade of experience in online content creation, Melissa has established herself as a trusted source for insightful financial advice and educational resources. Her writing prowess extends to diverse topics, including trading, cryptocurrency, and college savings. Melissa’s commitment to empowering readers with practical knowledge and actionable insights is evident in her contributions to various reputable platforms. As a dedicated financial editor, she meticulously covers the complexities of personal finance, ensuring readers have the tools they need to make informed decisions. Melissa’s work exemplifies her passion for educating and informing audiences on matters of financial literacy and investment strategies.