By Stacy Garrity, Pennsylvania Treasurer

The cost of college tuition doesn’t stop increasing. It rose 12% annually from 2010 to 2022, according to a report from the Education Data Initiative. If you think these astronomical increases are just among the elite universities, think again: tuition inflation isn’t limited to private universities. The same report found that the cost of tuition at public four-year institutions increased 9.24% annually over the same time frame.

What’s a family to do?

The best strategy is to save as much as possible as early as possible. One of the best ways to save for higher education in Pennsylvania – no matter what career path a child may take – is the PA 529 College and Career Savings Program. The PA 529 program has been helping families save for future education expenses with big tax advantages for more than 30 years.

There are currently more than 295,000 PA 529 accounts with over $7.3 billion in assets saved for future education. These are tremendous numbers by any measure. Over the past three decades, more than 1 million withdrawals from PA 529 accounts have helped families pay for tuition, fees, books, equipment, room and board, and more at thousands of qualifying technical, collegiate, and apprenticeship programs. PA 529 accounts can also be used for K-12 tuition and to help pay down student loan debt.

The Pennsylvania Treasury Department offers two PA 529 plans: the Morningstar Gold-Rated PA 529 Investment Plan and the lower-risk PA 529 Guaranteed Savings Plan. The state also provides a free $100 starter deposit for every child born to Pennsylvanians on or after Jan. 1, 2019, through Keystone Scholars. The program, which is funded without using any taxpayer dollars, encourages parents to start saving as early as possible. Parents can register their child’s account at pa529.com/keystone.

The PA 529 Investment Plan earned Morningstar’s Gold Rating, the highest rating possible, for the first time in November 2023. This recognition means Morningstar considers it one of the top two 529 plans in the country. In its announcement, Morningstar highlighted the Pennsylvania Treasury Department’s “[e]ffective and unrelenting advocacy on behalf of investors,” our “enhanced outreach and accessibility efforts,” and our multiple fee reductions, making the PA 529 Investment Plan less expensive than “roughly 80 percent of competitors.”

Over the past three years, I’ve been focused on making PA 529 – which was already a great program – even better and more accessible to every Pennsylvania family. The Pennsylvania Treasury Department reduced fees numerous times, saving account owners more than $11 million. We also eliminated the minimum deposit requirement to open an account and lowered the minimum contribution to $1.

The PA 529 Investment Plan offers various investment portfolios, including target enrollment date options that automatically reallocate assets to more conservative investments as your child approaches their anticipated date of enrollment in higher education.

The PA 529 Guaranteed Savings Plan is a lower-risk option, with earnings tied directly to college tuition inflation. With the PA 529 Guaranteed Savings Plan, families save at the tuition level of their choice – ranging from community college up to the Ivy League. Saving enough to pay for one credit at today’s tuition rate will result in having enough to pay for that same credit years from now, no matter how much tuition goes up.

No matter which PA 529 plan a family chooses, the tremendous tax benefits are the same:

• Up to $18,000 in contributions per beneficiary per year ($36,000 if married filing jointly, assuming each spouse had an income of at least $18,000) can be deducted from Pennsylvania taxable income.
• Contributions grow free of federal and Pennsylvania income taxes.  
• There is no tax on withdrawals for qualified expenses.
• Unique gift and inheritance tax benefits:
  -- Up to $90,000 in contributions can be made annually per beneficiary ($180,000 for a married couple filing jointly) without incurring federal gift tax.
  -- Money remaining in a PA 529 following a beneficiary’s death will not be included for federal estate tax purposes.
  -- PA 529 assets are exempt from Pennsylvania state inheritance tax.
• Rollovers to a beneficiary’s Roth IRA, with a lifetime limit of $35,000, can be made without incurring federal income tax or penalties. This is a new benefit with limitations.

More details about PA 529’s many tax benefits can be found here.

Withdrawals for nonqualifying education expenses may be made at any time, but there may be federal and state income tax consequences or penalties.

For tax purposes, the PA 529 program will issue a 1099-Q for account withdrawals. Account owners can log into their account to calculate their annual contributions for tax purposes.

Visit pa529.com to learn more about the PA 529 College and Career Savings Program or, better yet, to start saving for the future education of a child in your life.

Pennsylvania Treasurer Stacy Garrity previously worked at Global Tungsten & Powders in Towanda, Pa., the largest tungsten smelter in the Western World, where she started as a cost accountant and worked her way up to become the first of two female vice presidents at the company.

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^{Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.}