First addition to the family arrived last year and family has given a few hundred dollars towards his future education. I initially thought I would open a UTMA so I wouldn't be bound to use the money for college expenses and to have flexibility with investments without the caps and extra rules from a 529.
However when I went to Vanguard and I couldn't get their 529/UTMA comparison tool to work, I googled to see what my state (Louisiana) has for a 529. I'm kinda surprised by the advantages it has and I wanted to post here to see if I'm missing something.
The Louisiana 529 (START) offers an "earning enhancement", basically a percentage based match towards annual deposits based on your AGI. Looks like we'd qualify for 12% on annual deposits up to 5x the annual cost of attending college at the most expensive state college.
Reported AGI Rate Earnings Enhancement
$0 to $29,999 14%
$30,000 to $44,999 12%
$45,000 to $59,999 9%
$60,000 to $74,999 6%
$75,000 to $99,999 4%
$100,000 and above 2%
Earnings on START accounts are tax deferred until withdrawn. If the funds are used to pay Qualified Higher Education Expenses, the earnings are exempt from both state and federal taxes.
Deposits to a START account are deductible from Louisiana State Taxable Income up to a maximum of $2,400 per year, per account, and any unused portion may be carried forward to subsequent tax years on individual returns
Fund choices include:
VTWSX
VITSX
VGTSX
Vanguard small, mid, large cap index funds
If you move to a different state, you can roll over your START account to another 529 plan but all Earning Enhancements and interest thereon will be forfeited.
If the monies are refunded, the earnings included in the refunded amount become taxable by the federal and state governments and may be subject to a 10% (of earnings) penalty tax imposed by the IRS. Monies withdrawn up to the value of scholarships will not be subject to the 10% additional tax. Refunds will not include any Earnings enhancements.
So, considering I was probably going to put his money in the US total stock market index fund anyway and with the combined earning enhancement and tax deduction this seems like a slam dunk. Primary catch would be if we move to a different state, which considering college is 18 years away from him is a pretty good possibility.
Any thoughts from parents here who have made similar choices?