Morgan Black, MBA, CDFA, Staff Contributor

 

How Does The ScholarShare 529 Plan Work? 

The SchoarShare 529 plan is administered by the ScholarShare Investment Board (SIB). TIAA-CREF Tuition Financing Incorporated is the official plan advisor to SIB. It offers equity and fixed income-based portfolios. A program can be selected based on their child's age, investment style, and risk tolerance. All contributions to accounts grow on a tax-deferred basis.

The plan is so popular that even California Senator Dianne Feinstein publicly endorses it.

It’s never too early to begin saving for college. ScholarShare 529 is California’s state sponsored, tax-free college savings plan. It offers families low-cost tools to prepare financially for school. Find more information on ScholarShare 529 plans here:https://t.co/rlLOaFur7P

— Senator Dianne Feinstein (@SenFeinstein) May 24, 2021

 

Enrollment Requirement  

Any U.S. citizen or resident with a valid Social Security number or taxpayer ID can open an account with the Golden State ScholarShare. The account owner can also designate a beneficiary who is a future student. Anyone related or unrelated to the beneficiary can contribute to the account. 

 

 

Educational Programs Funded By ScholarShare

• Apprenticeship - This plan can pay for students who are opting for apprenticeships over a four-year college degree. The plan allows a student to pay books, equipment, fees, and supplies for on-the-job training with classroom instruction. The apprenticeship program must be registered with the U.S. Department of Labor.
• Vocational School - The plan can be used to pay for a vocational school anywhere in California or USA. A future tradesman/woman can pay for all qualified expenses including tuition, fees, housing, meal plans, books, supplies, computer technology, and equipment.
• Graduate and Undergraduate College - The plan can pay for qualified expenses including tuition, fees, housing, meal plans, books, supplies, computer technology, and equipment at any college or university in the U.S. as well as some international schools. 
• Continuing Education - The reality today is that to stay competitive in the job market we have to continue upgrading our skills. That may require us to go back to school to pursue a continuing education program or a degree program. The plan can pay for tuition, fees, housing, meal plans, books, supplies, computer technology, and equipment at a qualified institution. 

 

A financial blogger, a former engineer, and attorney Justin Root of Good has saved up for his children's college using the California ScholarShare. He has publicly tweeted about his first successful withdrawal.

Just made my first 529 withdrawal to cover 2021 college expenses for my kids. Just textbooks this year.

2022 is when the "real" college spending starts (maybe).

But that's what we saved it for! pic.twitter.com/w0spqXTQQH

— Justin Root of Good (@RootofGoodBlog) December 16, 2021

 

ScholarShare 529 Qualified Colleges

• University of California System
• California State University System 
• California Community Colleges
• California Vocational Colleges
• Stanford University
• CalTech
• Other California public and private colleges 
• Out of State Colleges and Universities

 

Benefits of ScholarShare 529 Plan

• Tax-Deferred - All earnings on the plan are tax-deferred. The qualified distributions are also exempt from federal taxes if residency requirements are met. In addition to that, a couple can deduct up to $10,000 per year and a divorced or separated parent can deduct up to $5,000 tax-free.
• Federal Tax Exemption - All qualified distributions for up to $10,000 per student per year are exempt from federal income tax.
• California State Tax - The qualified distributions are also exempt from the state tax.  
• Supports in-state and out-of-state schools - You can use your savings for schools inside Arkansas or outside.
• Estate Planning - A married couple can take advantage of five years' worth of federal tax-free gifts at one time and contribute $150,000. For single, divorced, and separated parents, the limit is $75,000 per person. 
• Rollover - You can also roll over from another state's plan.
• Flexibility - Designate a new beneficiary if the current beneficiary doesn't want to attend college.
• Plan Limit - The plan limit is $529,000, much higher than other states.  
• Loan Repayment - The plan allows repayment of up to $10,000 on any qualified education loan of either a 529 plan beneficiary or a sibling of the beneficiary.

 

How to Enroll 

• You can enroll by going to the ScholarShare plan website.

 

Criticism for ScholarShare 529 Plan

• Since the plan mainly invests in the stock market, the plan beneficiary may not have enough funds due to the market fluctuations.  
• Some distributions may be taxable.
• It gives an unfair advantage to the rich since they can save faster. 

 

Co-parents and ScholarShare 529

The California 529 plan can be a good option for divorced and separated parents residing in and out of the state. It can also be a good investment for those who want to send their child to a school in California. The high plan limit allows parents to save more than enough to fund their child's education anywhere in the US.  It is a perfect plan if you have an overachiever in the family who wants to attend Stanford.

 

Since co-parents have separate finances and only one person can start a ScholarShare plan, both parents can start one separately for the same child, and fund half of the balance.  This way, if the child decides not to attend college or they need to withdraw funds for some other reason, or assign a different beneficiary for their portion, they can do so easily.  Alternately, one parent can fund the entire plan and the other one can reimburse them for their half.  Another option is that they can start 529 plans in different states and fund half each.

 

Comparison With Other 529 Plans

Feature	California	Arizona	Washington
Max Contribution	$529,000	$518,000	4 Yr. Tuition
Full In-state Tuition	Yes	Yes	Yes
Full Out-of-state Tuition	Yes	Yes	No (Partial)
State Tax Exemption	Yes	Yes	N/A
Federal Tax Exemption	Yes	Yes	Yes
Primary Contributors	Anyone	Anyone	Anyone
Student Loan Repayment Option	Yes	Yes	No
Plan Review		Link	Link

 

Warning:  This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.