What You Need To Know About MOST, the 529 Education Plan in Missouri
Ask any parent with grown-up children–”the days are long but the years are short” is a little too accurate. That’s why now is the perfect time to start planning for the future, especially when it comes to your child’s education.
As tuition fees continue to rise, figuring out how to pay for college as early as possible is one of the best moves that you can make. In Missouri alone, tuition can range from $8,000 to upwards of $60,000 per year!
For many families, a 529 plan is a great choice as they prepare for these future college expenses. Not sure what this is? We’re here to share the ins and outs of 529 savings plans to help you make a decision that’s right for you.
What is a 529 plan?
A 529 is one of the most common college savings plans out there. Also known as qualified tuition plans, they’re sponsored by the state that you live in and allow you to make tax-deferred investments that can be used tax-free for qualified educational expenses on in-state and out-of-state institutions.
This doesn’t only count for college though. 529 money can be used for pre-college education, from elementary all the way up to high school if you’re enrolling your child in a private or religious school.
If your child chooses not to attend college and you have a 529 plan set up for them, you can change the beneficiary at any time to cover the cost of a younger sibling’s education instead.
You aren’t obligated to take out a 529 plan run by the state that you live in, but doing so can come with significant benefits when it comes to your state taxes. For most Missourians, the MOST 529 plan is what they choose to use.
Sponsored by the state and managed by Upromise, the MOST 529 offers a range of investment options, including age-based portfolios that become more conservative (in other words, less risky) the closer your child gets to college age.
There’s no minimum contributions required and has a maximum contribution limit of $325,000 per account. There is a small management fee attached to the 529 plans, but the MOST 529 is relatively low at around 0.23% to 0.6%. If withdrawals are made for nonqualified expenses, the funds will be subject to federal and state income tax, along with a 10% federal tax penalty
The benefits of a MOST 529 plan
Like other state 529 plans, the MOST 529 grows your money without federal or state taxes. The longer you invest, the more your tax-free savings will increase. That’s why opening an account when your child is very young can really pay off.
As a Missouri resident, you can also deduct contributions to a 529 from your state taxes each year–up to $8,000 per person, or $16,000 if married filing jointly. There’s also a $16,000 (or $32,000 if married filing jointly) annual gift tax exclusion for your contributions.
Once your child is ready to use their 529 funds, there’s no federal income tax owed on withdrawals of your investment or the gains made in the account.
Impact of a 529 to your child’s financial aid qualification
A 529 account is considered to be the account owner’s asset. The student is simply the plan beneficiary. This is important to consider when it comes to applying for college financial aid.
When your child fills out the FAFSA (Free Application for Federal Student Aid), the parents' assets are calculated at a rate of 5.64%. Student assets are calculated at 20%. So generally speaking, parents’ assets don’t make a big difference in terms of how much aid a student is offered.
There is an important differentiation, though, if a grandparent is opening a 529 plan for their grandchild. Since only parent and student income is reported on the FAFSA, any distributions from a grandparent-owned 529 plan will count as income for the student. The FAFSA typically looks at two years worth of income, so receiving funds from a grandparent could reduce financial aid eligibility after their freshman year.
On the other hand, if your child manages to get a full-ride scholarship, you’re able to withdraw funds equal to the scholarship amount without incurring the 10% unqualified expenses penalty. You’ll have to pay income tax on this, but there won’t be any penalties attached. Alternatively, you can leave the money in the 529 account and simply change the beneficiary name to another child in the family.
The MOST 529 plan is one of the most flexible when it comes to investment options. Age-based portfolios are tailored around the anticipated start date of your child enrolling in college or vocational training. As that date gets closer, the stocks and bonds in your 529 automatically adjust to become more conservative in an effort to stabilize your funds.
Individual portfolios are better for families looking to use their 529 funds for pre-college education or if you’re comfortable with allocating stocks and bonds yourself based on your investing style and target withdrawal date. You’ll have full control over your investment portfolio.
Gifts from friends and family
As birthdays and holidays come around each year, family and friends may want to gift some money to your child. The MOST 529 has a convenient online tool that allows anyone to contribute to any college savings account. Simply share your Ugift code for your MOST 529 with relatives and they can provide a gift directly.
Using your MOST 529 savings account
When you or your child are ready to use the money in their 529 account for college, money can be withdrawn to pay for:
- Approved study equipment
- Room and board for full-time students at accredited institutions (both public and private)
Students can also use their 529 accounts to pay for expenses at trade schools. Apprenticeship programs must be registered and certified with the Secretary of Labor to be considered a qualified educational expense.
Parents can make use of 529 funds before college too. Up to $10,000 per year per student can be used for qualified tuition programs at K-12 public, private, or religious schools.
How to open a 529 plan in Missouri
Setting up your MOST 529 is quick and easy. Visit the MOST site and choose the investment option that works best for your risk comfort. As there’s no minimum contribution amount required, you can start with as much or as little as you’d like.
You can also make automatic recurring contributions to ensure that you’re making frequent additions to the account. You’ll also be able to rollover funds from an existing 529 plan when you open one through MOST.
Anyone can open a 529 for a beneficiary, and there’s no limit on the number of 529 plans that you can have for the same child. However, the combined value of Missouri’s 529 plans for a single beneficiary cannot exceed $550,000.
What if I have more than one child?
While it’s possible to save money for all of your children in one 529 plan and change the beneficiary from one child to another as they graduate, having separate accounts for each child is generally easier to manage.
You can also have multiple 529 plans for a single child. So if a grandparent or other relative wants to start one of their own for your child and you already have an account set up, that’s not a problem.
Is the 529 plan tax free?
Yes, if used for qualified educational expenses. Any money invested into a MOST 529 is tax-deferred, but withdrawals can be made tax-free if used for higher or K-12 private education.
What is my tax liability after withdrawing funds from a 529 plan?
You won’t owe any taxes on funds withdrawn for educational expenses. If you choose to use that money for non-educational expenses, you’ll pay a 10% federal penalty, along with being required to pay both federal and state income tax on that amount.
What if I move out of Missouri?
Even if you move out of the state, there’s nothing stopping you from maintaining your MOST 529 account and continue to make contributions. However, you’ll no longer be able to make state income tax deductions on these funds if you no longer live in Missouri.
Can I use the money for private K-12 school?
Yes, up to $10,000 per year per student can be used for private K-12 tuition fees.
What other expenses can I use the money for?
Aside from tuition, room and board, and educational supplies that your child might need, there are a few other expenses that are considered qualified educational expenses. Sports, games, and hobbies are only accepted if they’re required as part of the student’s degree program. Students can also use these funds to pay for study abroad programs, but only for tuition costs. Day-to-day living and travel expenses are not qualified.
Start saving for your child’s future
If you’re ready to open a 529 education savings plan for your child, call and meet with a BTC Bank wealth advisor today. We’ll help you understand your college savings options and consider how a 529 plan fits into your wider investment and estate planning goals.
BTC Bank is not affiliated with the MOST 529 Plan. The above article is for informational purposes only and is not a recommendation for any particular product, service, fund, or investment vehicle.
Investment returns are not guaranteed, not FDIC insured, and you could lose money by investing in the Plan. Participants assume all investment risks, including the potential for loss of principal, as well as responsibility for any federal and state tax consequences. Fees may apply. Consult your tax and/or financial advisor to determine what is best for your unique situation.