Texas College Savings Plan Review

Morgan Black, MBA, CDFA, Staff Contributor

Texas is the second most populated state in the USA. A wave of younger people is moving to high-tech areas like Austin and Dallas-Fort Worth. To their luck, Texas has three great university systems - the University of Texas, Texas A&M, and Texas State University. And then they have community and vocational colleges around the state. The cost of living in Texas is lower than in California, New York, and Washington. But the cost of education is similar to these states. For a newly born child in Texas, it would cost $177,000 to attend a public university and $410,000 for a private.

To combat the high cost of college, Texas has sponsored a 529 savings plan called the Texas Colleges Savings Plan (TCSP). In this post, we will explore if TCSP is worth signing up for.

How Does The TCSP Plan Work?

The TCSB is an equity-based college saving plan that allows parents to select portfolio options based on their child's age, investment style, and risk tolerance. All contributions to the account grow on a tax-deferred basis.

Enrollment Requirement

A U.S. citizen or resident can open an account and designate a beneficiary. Anyone related or unrelated to the beneficiary can contribute to the account.

Educational Programs Funded By TCSP

Apprenticeship - TCSP can be used to pay for books, equipment, fees, and supplies for a US Department of Labor approved on-the-job training with classroom instruction.
Vocational School - TCSP can also be used to pay for a vocational school with a Federal School Code.
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.

Benefits of TCSP

Low Startup Cost - Parents can start a TCSP plan for as little as $25 and contribute up to $500,000 per beneficiary.
Gift Contributions - Family and friends can also contribute to the plan. A married couple can take advantage of five years' worth of federal tax-free gifts at one time and contribute $150,000. Singles, divorced, and separated parents, the limit is $75,000 per person.
Tax-Deferred - All earnings on the plan are tax-deferred.
Scholarship Withdrawal - If the student receives a scholarship, the money equal to the scholarship amount can be withdrawn tax-free.
Federal Tax Exemption - All qualified distributions for up to $10,000 per student per year are exempt from federal income tax.
Supports in-state and out-of-state schools - You can use your savings for schools inside Arkansas or outside.
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 $500,000, much higher than most other states.

How to Enroll

You can enroll by going to the TCSP website.

Criticism for TCSP 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 TCSP

TCSP 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 Texas. The high plan limit allows parents to save more than enough to fund their child's education anywhere in the US.

Since co-parents have separate finances and only one person can start a Texas College Savings 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	Texas	Arizona	California
Max Contribution	$500,000	$529,000	$415,000
Full In-state Tuition	Yes	Yes	Yes
Full Out-of-state Tuition	Yes	Yes	Yes
State Tax Exemption	No	Yes	Yes
Federal Tax Exemption	Yes	Yes	Yes
Primary Contributors	Anyone	Anyone	Anyone
Student Loan Repayment Option	Yes	Yes	Yes
Plan Review		Link	Link

Related:

What is a 529 College Savings Plan?

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.

Co-parent with confidence by tracking children's shared expenses.