Virginia529 rolled out a new college savings program called the Tuition Track Portfolio (TTP) on February 1st of this year. This new college savings option is an exclusive opportunity for Virginia residents and is designed to mirror the average tuition growth at Virginia public four-year colleges and universities. This plan replaces the former Prepaid Tuition Program, which is now permanently closed to new investments, though existing contracts continue to be honored. We explore a number of key features of this new, unique college savings plan.
Who Might Prefer This Plan?
Just like other 529 plans, the new Tuition Track Portfolio is a college savings plan that offers tax incentives for individuals to make contributions for their children’s, grandchildren’s, or other relative’s college education. However, unlike most 529 plans, this new program does not offer investment growth. Rather, it allows you to lock-in today’s tuition levels, knowing your savings will grow at the same rate as the average tuition increase at Virginia public colleges and universities.
This new investment option of the Virginia529 might be appropriate for individuals who would have previously gravitated toward a Prepaid Tuition program and wish to have more certainty about covering a given amount of tuition at an in-state school. This plan may also be attractive for those who prefer more protection against investment losses. However, the TTP does come with its own set of unique restrictions, particularly requirements to save early, which are covered in the “How TTP Differs from Other Virginia529 Plans” section below.
How TTP Works
The TTP Program focuses on preserving your investment relative to tuition inflation. With the TTP, you are no longer tied to contracts or required to purchase semesters. Rather, you buy units (explained below) that are based upon current tuition rates and then grow by average Virginia tuition inflation rates. You can contribute in any dollar amount and any manner, either as one-time or recurring contributions.
Tuition accounts for roughly half of the total cost of attending college. The other half consists of expenses for room and board, books, and supplies. College tuition costs have been increasing faster than the rate of inflation. The tuition for Virginia public colleges and universities increased by 75% from 2010 – 2020, and now averages ~5% increase per year.
Every year, the Average Tuition at Virginia public colleges and universities will be calculated. This Average Tuition amount is divided into 100 units to arrive at the price of an individual unit. Therefore, if your child attends a college that charges the average tuition rate, you would need to purchase approximately 400 units to cover four years of tuition. The current average in-state tuition at a Virginia public college /university is $13,636 per year, and each unit currently costs $136.36
More than half of Virginia public colleges and universities have tuition costs that are less than the Average Tuition rate. This means 100 units a year at those schools will cover all tuition, with some funds remaining which can be used for additional qualified education expenses, such as room, board, and books. To cover the cost of tuition at a higher-than-average priced college, or to cover qualified educational costs beyond tuition at any eligible school, you can purchase and use more than 100 units each year. A beneficiary can have a maximum of 1,000 units at any time.
For example, the annual in-state tuition cost for the College of William and Mary, currently the most expensive Virginia public institution, is $23,628. Thus, it would take ~174 units to fully cover the tuition cost at this school. Virginia State University, currently the most affordably-priced Virginia school, has an annual in-state tuition cost of $9,154. It would only take ~68 units to fully cover the tuition cost at this school.
Units can also be used at a private or out-of-state school. No penalties are involved, but, the liquidated value might not go as far since private and out-of-state tuition rates are typically higher.
How TTP Differs from Other Virginia529 Plans
Just like the other Virginia529 or Invest529 portfolios, TTP offers tax-free growth and is eligible for the $4,000 Virginia state income tax deduction. Some differences with the TTP are:
- The cost to purchase a unit and the maturity value of any units you have already purchased will shift annually to match average tuition costs. The value remains static for the year purchased, and the pricing resets each year, on or about July 1st. Account owners will receive advance notice of the price changes.
- There are no asset-based fees assessed on the funds invested in the TTP and there are no administrative fees.
- If you intend to use the TTP, advance funding is essential for two key reasons. First, units can only be purchased through June 30th of the year in which the beneficiary graduates high school. After that, if you still wish to save money, you will need to invest in one of the other Virginia 529 Portfolios. Additionally, TTP units are only eligible for use once they have been held for 3 or more years. When you combine these two restrictions together, the outcome is that the TTP program requires you to save for college well in advance, with little room for catch-up once your child is in high school.
- Tuition Track Portfolio is for Virginia residents only. Either the owner of the account or the beneficiary must be a resident of Virginia at the time the account is opened. You may keep the account open even if you or the beneficiary later move out of Virginia. However, the beneficiary would not be eligible for Virginia in-state tuition rates unless they are a Virginia resident at the time of attending school.
Funds from the TTP can be transferred to other Invest529 portfolios. However, the value of those funds will depend on whether the TTP account has reached the Expected Usage Date and whether the funds have been held in the account for three or more years.
Account owners can transfer TTP units to other beneficiaries to include younger or older siblings, and other members of the family of the beneficiary who are within the same generation of the original beneficiary (such as a cousin), and who are eligible at the time of the beneficiary change. The Expected Usage Date will be changed to match the new beneficiary.
For additional information, visit the website, www.virginia529.com. There is also a Tuition Track Calculator available on the website, which allows you to figure out how many units you can buy based on your budget. You can also use this tool to compare tuition amounts at public and private colleges in Virginia and throughout the United States.
Paying for your child’s college education is one of the largest single expenses your family may face. Given the magnitude of today’s college costs, SageVest Wealth Management believes it’s important that the investment you make in your child’s future is well-planned and spent wisely. To learn more about college savings and whether this new program might be appropriate for your circumstances, please contact us.