Saving for College in the Shenandoah Valley: Is a 529 Plan Right for Your Family?

Raising your family in the Shenandoah Valley comes with no shortage of fresh air, mountain views, and a strong community that you can rely on. But when you’re the parents of young children, or you’re expecting your first any day, you’ve probably already started to think about their future—namely, their education.

 

One of the most popular options for college savings across the country is the 529 plan. For Virginia residents, the well-regarded Invest529 could be the right fit for your family. But exploring all of your options before you make a big investment in your child’s future is important. We’re here to give you the rundown on the Virginia 529 plan, along with alternatives to find the best college savings plan in Virginia.

What is a 529 Plan?

The Basics of 529 College Savings Plans

A 529 plan is a tax-advantaged savings account that’s specifically designed to help families set aside money for future educational expenses. These plans are typically sponsored by states, state agencies, or educational institutions and are available to residents of all 50 states.

 

There are typically two kinds of 529 plan—the prepaid tuition plan allows you to pay for future tuition at today’s rates (this isn’t available in Virginia), and the education savings plan that gives you the option to invest your savings in a range of portfolios to grow over time. This is how the Invest529 in Virginia is set up.

How They Work and What They Cover

Funds in a 529 account can be used to cover tuition and fees, books and supplies, room and board (if enrolled at least half time), computers and internet coverage, up to $10,000 a year in K-12 tuition, along with apprenticeship programs.

 

You can also use your 529 plan to cover up to $10,000 of student loan repayments. The money in a 529 is invested in portfolios of your choice, which may include options for age-based investments that adjust automatically as your child reaches college age. While investment returns aren’t guaranteed, your contributions have a strong potential of growing over time.

Tax Advantages That Make 529s Attractive

One of the biggest reasons people invest in a 529 is their tax advantaged status. Your money will see tax-free growth, so earnings aren’t taxed as long as withdrawals are used for educational expenses. Many states, Virginia included, also offer tax deductions and credits for contributions to a 529 plan.

Why Families in the Shenandoah Valley Should Consider a 529 Plan

College Planning in a Rural-Urban Mix

With numerous higher education institutions, and subsequent professional opportunities, nearby, the Shenandoah Valley offers the blend of rural living with urban benefits that many young families are looking for.

 

Whether your child is dreaming of attending James Madison University, wants to pursue a trade-based career from Blue Ridge Community College, or is looking further afield throughout the state, their 529 plan can support them.

 

Many local families appreciate the simplicity of a long-term plan like the 529, especially where your savings can go further once your children reach college age.

Access to Local Support and Financial Advising in the Region

Community banks like F&M Bank are here to offer guidance on education savings options. Our financial advisors and banking team have local knowledge to offer you the personalized support you’re looking for, which is especially valuable for navigating state-specific benefits of education plans.

Education and Cost Trends in Virginia and Nearby States

College costs nationwide have been increasing over the last decade, with in-state tuition in Virginia now averaging over $13,000 a year at public universities. Trade programs and community colleges can offer more affordable options, but still come with costs for fees, equipment, and room and board.

 

By starting early, even with small monthly contributions, your child will have more options when it comes to affording college and avoiding debt as much as possible.

Spotlight on Virginia’s Invest529 Plan

Overview of the Invest529

When you’re thinking about Shenandoah Valley college savings, the Invest529 plan can be a great option, thanks to its flexibility and ease of use. Previously known as the Virginia College Savings Plan, the Invest529 rebrand falls in line with the broader use of these funds outside of a traditional four-year college.

 

There are no minimum contributions required to open an account, with a wide range of investment portfolios available. Funds in the Invest529 plan can also be used for K-12 education and vocational training, along with traditional college degrees.

State Tax Deductions for Virginia Residents

For VA residents, the Invest529 plan offers a state income tax dedication up to $4,000 per account per year (so if you have more than one child, you’ll benefit from each of the 529 plans you have open for them). If you invest more than $4,000 per year, you can carry over the excess to future tax years.

Flexibility and Investment Options Available

Portfolios within the Invest529 plan range from age-based options to static choices like stock, bond, and blended portfolios. This allows you to tailor your account to your comfort and risk levels.

Online Tools and Resources from Invest529

The user-friendly Invest529 website includes calculators, planning tools, and educational resources to help you make the most of your savings. You can easily set up automatic contributions or share a gifting link with family and friends to help them contribute to your child’s future.

Alternatives to the Virginia 529 Plan

Coverdell Education Savings Accounts (ESA)

Available through banks like F&M Bank, Coverdell ESAs are another popular option for tax-advantaged savings for education. These can be used for a wider range of K-12 expenses than a traditional 529 plan, while you’ll also have greater control over your investment choices.

However, the annual contribution limit is only $2,000 per child, and income limits also apply for contributors. Your child must use the funds by the age of 30, whether they’re paying for a college class or repaying student loans.

Custodial Brokerage Accounts

Custodial brokerage accounts can be set up in your child’s name and can be used for any purposes once they reach 21 (in Virginia). There’s no restrictions on how the money can be used and these plans offer broad investment choices. There are, though less favorable tax benefits to these accounts and, crucially, can be counted as an asset for financial aid, which could lower your child’s eligibility for aid.

Roth IRAs for Education

Although Roth IRAs are usually used for retirement, there is an option to make penalty-free withdrawals for qualified educational expenses. This can be a good backup plan for parents who also want to save for their own futures while supporting your children.

Traditional Savings and CDs

For those looking for a low-risk, guaranteed return, a high yield savings account or certificate of deposit (CD) can provide you with predictable growth. However, there are no tax advantages for these accounts and the chances of high returns are much lower than a 529 or ESA.

Tax Considerations: 529s vs Alternatives

Federal and State Tax Benefits of 529 Plans

A 529 plan offers both tax-free growth and withdrawal, along with a VA state income tax deduction. Earnings used for non-qualified expenses, though, are subject to income tax and a 10% penalty.

How Coverdell ESAs Compare on Taxes

When looking at Coverdell ESA vs 529s in Virginia, it’s important to remember that Coverdell ESAs also allow for tax-free growth and withdrawals for educational expenses. There are some contribution and income limitations, which may make these plans less accessible for some families. But in many cases, the tax advantages and flexibility of ESAs is a great option.

Tax Treatment of UGMA, UTMA and Roth IRAs

UGMA (Uniform Gifts to Minors) and UTMA (Uniform Transfers to Minors) are custodial accounts that allow adults to transfer assets to minors without needing to create a formal trust. The earnings in these accounts are taxable annually and withdrawals are not tax free. Roth IRAs have tax-free growth, but non-qualified withdrawals may be subject to taxes or penalties.

 

These options can be good for additional financial planning, but are typically not the best option for educational savings.

How Virginia Residents Can Maximize Tax Efficiency

To prioritize your tax efficiency as a Virginia resident, prioritize your Invest529 contributions up to $4,000 per account per year to take full advantage of the state tax dedication. From there, considering layering in a Coverdell ESA, particularly if you anticipate needing K-12 expenses to be covered as this is more flexible than a 529.

How to Get Started with a 529 Plan in Virginia

Opening an Invest529 Account Online

Opening an Invest529 account is easy — simply apply online at Virginia529.com, where you’ll need to fill out basic information about yourself and your child, or the intended beneficiary. These accounts can be opened with as little as $10.

Choosing Investment Portfolios

Consider your child’s age when you open your accounts, alongside your comfort and risk level. For those with younger children, a more aggressive investment option may be best. Parents of older children who are closer to college age, a more conservative portfolio can help preserve the value of your contributions.

Automatic Contributions and Gifting Options

You can easily set up monthly contributions to an educational savings account. Many also have options to share a custom gift link so that friends and family can also contribute to the account. This can be a great option for holidays and birthdays.

Choosing The Right Path For Your Children’s Future

Balancing Tax Benefits, Flexibility and Family Goals

There’s no one-size-fits-all approach to saving for your child’s future education. The Virginia Invest529 offers robust tax advantages and flexible options for your portfolio, making it an excellent starting point for many families in the Shenandoah Valley.

Local Financial Advisors and Resources in the Shenandoah Valley

If you’re ready to start saving but aren’t sure which is the best option for your circumstances, talk to the team at F&M bank today. Our local knowledge makes all the difference and we’ll work with you to open a Coverdell ESA to take advantage of tax-deferred growth.

 

Visit us in branch to speak with a local banker about your college savings options, with localized knowledge about the educational landscape of the Shenandoah Valley.