This step-by-step guide to enrollment in Texas’s 529 college savings plans makes it easier for parents and grandparents to open a Texas 529 plan tailored to their savings and investment objectives.
1. Choose a 529 Plan
Texas has three 529 plans:
- Texas College Savings Plan – direct-sold plan
- Lonestar 529 Plan – advisor-sold plan
- Texas Tuition Promise Fund – direct-sold prepaid tuition plan
Each plan is a tax-advantaged savings account that offers the same tax benefits, including tax-free withdrawals for qualified education expenses.
The Texas 529 plans have among the lowest fees of all direct-sold 529 plans. However, contributions to the Texas 529 plan are not subject to state income tax breaks since Texas does not have a personal state income tax.
There is no federal income tax deduction on 529 plan contributions. Families can invest in almost any in-state 529 plan, not just Texas’s, so they may wish to shop around for the plans with the lowest fees and best performance.
2. Determine the Type of 529 Plan Account
There are two main types of 529 plan accounts: individual accounts and custodial accounts.
Most families open an individual account with a parent as the owner and a child as the beneficiary. Everyone, including parents, grandparents, aunts, uncles, and other relatives, can contribute to a parent-owned 529 plan account.
Typically, only one parent can be the account owner. If the child’s parents are divorced, both parents can have 529s for the same beneficiary. If a divorced parent has remarried, the account owner should be the child’s biological parent, not the stepparent.
If money from a custodial bank or brokerage account, such as a UTMA or UGMA account, is used to fund a 529 plan, it should be set up as a custodial 529 plan.
With a custodial 529 plan account, the child is both the account owner and the beneficiary. Since the child is a minor, a custodian will manage the account on behalf of the child until the child reaches the age of majority. Note that the beneficiary of a custodial 529 plan account cannot be changed.
3. Complete the 529 Plan Application
To open a 529 plan account, it’s easiest to apply online from our Texas 529 page. You can also print and apply by mail.
Most 529 plan account applications will require the following information:
- Name of the account owner
- Name of the beneficiary
- Personal information about the account owner and beneficiary, including their mailing address, telephone number, email address, date of birth, and Social Security Numbers (SSN) or Individual Taxpayer Identification Numbers (ITIN).
The 529 plan account application may also ask for the name and personal information of a successor account owner if the original account owner dies.
The 529 plan account application may also ask you to pick an initial set of investment portfolios.
If the application form is confusing, call the 529 plan’s toll-free number to ask questions. The toll-free number for the Texas 529 plans is 1-800-445-4723.
You can also ask questions by emailing the state’s plan, but do not include account numbers, passwords, or other personal information in the message. The FAQ on the plan’s description page answers the most common questions.
4. Choose Investment Options for the 529 Plan
After the 529 plan has been opened and some funds have been deposited into the 529 plan, it’s time to choose investments for the 529 plan. The number of investment options is limited, making it easier to choose.
Most invest in an age-based portfolio, which starts with an aggressive mix of investments (e.g., primarily stocks) and gradually shifts to a less risky mix of investments as the child approaches college age.
The Texas College Savings Plan offers age-based portfolios, five static portfolios, and five single-fund portfolios. The single-fund portfolios include an inflation-protected bond fund, a fixed-income fund, and a money market portfolio.
You can change your investment strategy twice a year, and you may want to consult a financial advisor or tax advisor to optimize your portfolio.
5. Fund the 529 Plan
There are several ways to deposit money into a 529 plan. These include mailing a paper check to the plan and transferring the money electronically from your bank account.
All 529 plans allow you to set up automatic contributions from your bank account. You must specify the contribution amount and frequency (e.g., biweekly, monthly, quarterly, annually). The 529 plan will also need your account’s bank routing number and account number, as well as a voided copy of a preprinted check or deposit slip.
Some 529 plans, including the Texas 529 plan, can set up automatic contributions through payroll deduction from participating employers.
Other options include a rollover from another 529 plan, money from a Coverdell education savings account, or money from the redemption of a qualified U.S. Savings Bond.
The minimum initial deposit is $25. Subsequent contributions, including automatic contributions, must be at least $25. The minimum payroll deduction amount is $15 per pay period.
There are no annual contribution limits for a 529 plan, but you can give up to $19,000 ($38,000 as a couple) each year without incurring gift taxes or using up part of your lifetime gift tax exclusion.
529 plans provide 5-year gift tax averaging, so you can give up to 5 times as much money ($95,000 or $190,000 as a couple) in a single year and treat it as though it were given over a 5-year period.
Texas 529 plans have a lifetime maximum contribution limit of $500,000. After a 529 plan account reaches this balance, it can still earn interest and appreciate, but no additional contributions will be accepted. Most people do not reach this limit.
Many people start with a small, automatic monthly contribution and increase the amount after a few months. If you aim to save about a third of the future education costs of a public college education, start saving $250 per month from birth. If you can’t handle that big a contribution, start with what you can afford to fund the education savings plan.
