Does Texas Have a 529 Plan? Explaining the State’s Plans
Understand Texas's approaches to college savings, from prepaid tuition to investment-based options for future education.
Texas offers distinct 529 plans to help families save for higher education expenses. These tax-advantaged plans cater to different financial strategies. The state provides two primary options: the Texas Tuition Promise Fund, a prepaid tuition plan, and the Texas College Savings Plan, an investment-based savings plan.
The Texas Tuition Promise Fund
The Texas Tuition Promise Fund operates as a prepaid tuition plan, allowing participants to lock in future tuition and required fees at today’s prices. This is achieved by purchasing “tuition units,” with each unit generally representing one percent of the average undergraduate resident tuition and required fees at a Texas public university. The plan is designed to protect savings from rising tuition costs, as the value of the units grows in line with inflation in higher education expenses at Texas public institutions. These units cover tuition and required fees at Texas public colleges and universities, including community colleges.
The Texas Tuition Promise Fund does not rely on market investment returns for growth; its value is tied directly to the cost of tuition. Eligibility generally requires either the account owner or the beneficiary to be a Texas resident at enrollment. Benefits can be used at most Texas public universities and community colleges, and a transfer value can also be applied to eligible private or out-of-state institutions.
The Texas College Savings Plan
The Texas College Savings Plan invests contributions in various portfolios chosen by the account owner. These portfolios can range from age-based options, which automatically adjust their asset allocation as the beneficiary approaches college age, to more static or individual fund choices. The value of the account fluctuates based on the performance of the underlying investments, meaning there is potential for growth or loss depending on market conditions. This plan does not guarantee or lock in future tuition rates.
Funds saved through the Texas College Savings Plan can be used for qualified higher education expenses at eligible educational institutions nationwide. These expenses include tuition and fees, room and board costs, books, supplies, and required equipment. There are no residency requirements for account owners or beneficiaries to participate in this plan, making it accessible to individuals across the United States.
Enrolling in a Texas 529 Plan
Opening an account for either the Texas Tuition Promise Fund or the Texas College Savings Plan involves an application process. Prospective account owners can visit official program websites for detailed information and online enrollment portals. The application requires personal details for both the account owner and the designated beneficiary, including names, addresses, and Social Security Numbers or Taxpayer Identification Numbers. This information is necessary for identification and tax reporting purposes.
After completing the application, an initial contribution is usually required to establish the account. Account owners can then set up ongoing contributions through various methods, such as automatic bank transfers or payroll deductions. Specific minimum initial contributions or subsequent contribution amounts may apply depending on the chosen plan and investment option.