529 College Savings Plans in New York

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The New York 529 College Savings Program stands out for its low fees and transparency. The total asset-based fee was recently reduced to 0.13% for each portfolio. Any account holder can enjoy several tax benefits, but New York families can deduct up to $10,000 from their state taxable income. You can open an account with no minimum on your initial deposit, and you can contribute more than $500,000. And although some may find the plan’s investment menu a bit limited, its choices are designed for savers with all risk levels. You can even choose from age-based options, which automatically change their asset allocation to become less risky as your child approaches the college years.

How Do I Enroll in New York’s 529 College Savings Plan?

The easiest way to open an account with New York’s 529 College Savings Program is online. The process should take only a few minutes if you’ve gathered the following information about yourself and your beneficiary (the person you’re opening a NY 529 plan for). 

• Birthdates
• Addresses
• Social Security numbers or tax identification numbers
• Your bank account and routing numbers if making initial contribution electronically 

In addition, you’d also need to select your investment option or options at time of enrollment. You can also fill out a paper application and mail it in. 

How Much Does the New York Direct-Sold 529 Plan Cost?

As far as fee structures go, New York’s direct-sold 529 program is among the simplest and most transparent one we’ve examined. Each portfolio in the direct plan charges a total annual asset-based fee of 0.13%, making New York’s direct 529 plan one of the country’s most fee-friendly options. This total fee combines the program management fee along with a portfolio’s estimated underlying mutual fund expenses. It’s not charged directly, but factored out of the total assets from each portfolio. Thus, your account bears a pro-rata share. 

Furthermore, the plan doesn’t charge an application fee or annual account maintenance fee as plans sponsored by some other states do. It also doesn't levy extra expenses on out-of-state residents who open accounts.

Tax Benefits of New York’s 529 Plan

New York’s 529 College Savings Program offers some decent tax protections. New York State single filers can deduct up to $5,000 in annual contributions when calculating their New York state income tax. Married couples filing jointly can deduct up to $10,000 in contributions. 

But the plan is open to any U.S. citizen or resident alien with a valid Social Security or Tax Identification number. All account holders can enjoy tax-exempt growth on their contributions. This means your money can grow in the market free from Uncle Sam’s grip, and you can thus make the most out of compound interest. The money you take out of the plan will also be tax free as long as you use it to fund qualified higher education expenses such as tuition and mandatory fees. 

However, you may run into some tax consequences when you take money out of the plan for anything else. This move is known as a nonqualified withdrawal, and the earnings portion of the withdrawal may be subject to federal income tax and a 10% penalty. You may also have to pay back previously-claimed tax deductions. 

You should speak to an experienced financial advisor or tax professional to discuss how any nonqualified withdrawal may affect you based on your unique circumstances.

What Are My Investment Options?

By signing up for New York’s 529 College Savings Program, you can invest in a range of portfolios built with mutual funds managed by Vanguard, a leading investment firm. You can choose from age-based portfolios or individual options. 

Those new to the investing world may be interested in age-based portfolios, which take plenty of the investment guesswork out of the equation for you. In general, these options automatically change their asset allocation—or mix of stock and bond funds they invest in—to become less risky as your child reaches college age. However, New York’s direct 529 plan lets you put your age-based portfolio on a specific track related to your risk level.

If your risk tolerance is high, you can put it on the aggressive track. This would ensure the portfolio invests a decent amount in stock funds throughout the life of the investment. Stocks are generally considered more volatile than bonds, but also have the potential for strong growth. So by the time your child turns age 18, this portfolio would still invest 25% of your money in stock funds. But if you had put your age-based portfolio on a conservative track, the portfolio would be entirely invested in bond funds and short-term reserves by then, which are considered less risky investments. 

In addition, you can also choose from a range of 13 individual portfolios. Each individual portfolio invests in a single underlying mutual fund. As a whole, the plan’s individual portfolios touch on all major asset classes. You can utilize one or more of these options to create a personalized investment strategy based on your goals and risk level. 

Federal law allows you to change portfolio options twice per year without penalty. You should consult a financial advisor to determine how to change investment options, if at all, as your financial situation and goals progress. 

How Do I Withdraw Money from New York’s 529 College Savings Program?

You can request a withdrawal by logging on to your account. Payments can be sent to you, your beneficiary or the school he or she is enrolled in.

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If you prefer to invest in your child’s college future with the help of a professional, New York’s 529 Advisor-Guided 529 College Savings Plan may be the right option for you. This plan offers a diverse investment menu of portfolios with underlying funds managed by J.P. Morgan and other leading financial services firms. These portfolios offer exposure to traditional and non-traditional asset classes, and some also invest in exchange-traded funds (ETFs). But because you’d be working with a qualified advisor through every step of the college savings process, you may face higher fees than you would find in a direct plan. 

How Do I Enroll in New York's 529 Advisor-Guided College Savings Plan?

With the help of a financial advisor, you can open an account with New York's 529 Advisor-Guided College Savings Plan. Your advisor can help you through the enrollment and investment selection process. He or she can also help you build a customized investment roadmap based on your unique financial situation and goals. 

But before you decide on a financial advisor to work with, you should ask advisors questions especially about their qualifications, credentials and fee structures. Some certifications hold advisors to different standards. For example, Registered investment Advisors (RIAs) are registered with the Securities and Exchange Commission (SEC). As fiduciaries, they’re legally obligated to work in your best interests.

How Much Does the NY Advisor-Sold 529 Plan Cost?

The cost of investing in New York’s Advisor-Guided 529 College Savings Plan ultimately depends on the portfolio or portfolios you choose to invest in, as well as the share class you choose. But because you’d be saving for your child’s education with the help of a professional every step of the way, you’d likely face some fees not typically associated with direct-sold 529 plans. 

Some of these fees, such as sales charges, are levied to compensate advisors and others involved in running the plan. Sales charges vary depending on which share class of units you choose. Class A units for example charge an initial sales charge which is factored out of each contribution. Class B and C units don’t carry initial sales charges, but they do have contingent deferred sales charges (CDSC), which are typically triggered when you take money out of the plan before a certain amount of time has elapsed. Advisor Class shares carry the lowest fees overall, but you have to meet certain requirements. For example, you have to work with a RIA or fee-only planner to purchase advisor-class units. 

It’s also important to note that Share Class units can change over time. For example, Class B units convert to Class A units after eight years, and Class C units do the same after seven years. In addition, the plan charges a $25 annual account maintenance fee. 

Below are more detials about how fees break down based on share class.  

Class A 

• Total Annual Asset-Based Fees: 0.65% - 1.30%
• Maximum Initial Sales Charge: 3.75%
• Annual Account Maintenance Fee: $25

Class C 

• Total Annual Asset-Based Fees: 1.33% - 2.05%
• Maximum Contingent Deferred Sales Charge: 0.90%
• Annual Account Maintenance Fee: $25

 Advisor Class 

• Total Annual Asset-Based Fees: 0.33% - 1.05%

As you can see, the fee structure of advisor-sold 529 plans can get a bit complex, and it varies across investment choices. So you should have a thorough discussion with your advisor about which investment option and share class you can most comfortably afford and which one is most compatible with your risk appetite and financial goals.

Tax Benefits of New York’s Advisor 529 Plan

The New York 529 Advisor-Guided College Savings Plan offers the same tax benefits as its direct-sold counterpart. You can enjoy tax-free growth on your contributions, and tax-free withdrawals for qualified higher education expenses. 

However, you should discuss specific tax perks with your advisor. For example, 529 college savings plans allow several ways you can give money to students while avoiding gift tax even if it’s a large sum. In addition, you should speak to your advisor about weighing the pros and cons of a nonqualified withdrawal should the need for one arise. In some cases, the 10% penalty alone can be waived. Your advisor can also help you find alternatives that won’t require you to tap into your child’s college savings.

What Are My Investment Options?

New York’s advisor-sold 529 college savings plan offers some of the same types of portfolios as its direct-sold counterpart including age-based options and individual portfolios. However, the age-based portfolios in the advisor-sold plan are run by J.P. Morgan, another leading financial services firm. In addition, they offer exposure to different asset classes such as real estate. 

You can also choose from a variety of asset-allocation portfolios. These options are built with underlying funds that also invest in various traditional and non traditional asset classes from different fund companies.

How Do I Withdraw Money from New York's 529 Advisor-Guided College Savings Plan?

You can request a withdrawal by logging on to your account or by downloading and mailing a withdrawal request form. You should reach out to your financial advisor before you make any type of withdrawal, however. 

If you’re not sure how to go about seeking a professional, you can use our free SmartAdvisor matching tool. It asks you a few simple questions about your financial goals before linking you to three local advisors who can best meet your needs. You can then review their qualifications and credentials. Finally, you can set up interviews to narrow your search and find the right individual to work with.

Check Out Other 529 Plans

You do not have to live in New York to invest in its 529 plan. Take a look at these other states' 529 plans.