For participants in the Texas Guaranteed Tuition Plan (also known as the Texas Tomorrow Fund) an important refund deadline is approaching. Any refund requests received before November 30 will be processed according to the current rules. The current rules allow for a refund of the original contribution plus earnings based on the rate of tuition inflation for a child who is age 18 or older. For those under 18, an actuarial value is calculated based on the date you bought the contract, the number of years until your child graduates from high school or turns age 18, and the number of payments made compared to the total number of payments required. After November 30, the new rules allow for only a return of the contributions, less expenses. Big Difference!
If you bought into the Texas Tomorrow Fund and your child plans to attend an accredited school in Texas, this change likely doesn’t affect you. You still have their tuition costs locked in and you have a terrific guarantee that no matter how high tuition goes, the plan credits you purchased will cover the costs. So you really wouldn’t want a refund.
However, if your child plans to attend school out of state or not attend college at all, you may wish to consider taking action now. In this case, you have several options.
You can request a refund from the plan and do a roll-over to another 529 plan. This would be a good option if your child plans to attend college out of state and you want access to control the investments prior to your child’s college enrollment. If you complete the roll-over within 60 days, you will not be subject to any taxes or penalties.
If you decide to do a roll-over, here are a couple of pointers: You are not required to use the state’s 529 plan where your child plans to attend school. Texas has no state income tax, so there’s really no incentive for using the Texas plan over any other plan. You are truly free to comparison shop and use any state’s plan that offers the best options for you. www.SavingforCollege.com is a good resource to start your search.
Another option is to simply take a withdraw. This may be the best option if your child does not plan to attend college and you have no eligible alternate beneficiary you wish to change to. If you go with this option, you will be subject to income taxes and a 10% penalty on the gains (gains are any amounts refunded in excess of what you contributed).
The Texas Guaranteed Tuition Plan website has a lot of really good information about this change and options available to you. You can log in and see your estimated account value to aid in your decision.
The important thing is to review the refund option based on your specific situation, calculate all of your options in advance of the deadline, and make a decision most beneficial to your family. There’s not one right answer for everyone.