In a recent blog post, we outlined how 529 education savings plans work, and why they can be such an attractive tool for saving for education expenses.
If you own or contribute to an account with the Oregon College Savings Plan, you probably realize that the administration of the plan changed (again) last year from TIAA-CREF to Sumday (a subsidiary of BNY Mellon). You may have also noticed that the transition was not smooth. Account owners have had difficulties obtaining account statements, making contributions, obtaining distributions and even accessing the plan’s website. One of us at Springwater is still not able to obtain a 2018 statement for an account he owns.
According to an article in The Oregonian in January, there are 65,000 account holders and 109,000 accounts, with $1.8 billion in assets in the plan. At that time, the paper reported that “So far, Sumday hasn’t been able to accurately load historical statements or information for account holders. No past balances, transaction information or individual performance data (are available).”
The Oregon 529 plan has never been a particularly strong plan. Several states (e.g. Utah, Nevada, Virginia) offer superior plans, with lower fees, better investment options, etc. However, the State of Oregon offers state residents a tax benefit for contributions to the Oregon plan. Specifically, in 2019 Oregon taxpayers may deduct up to $2,435 (single) or $4,865 (joint) for contributions to the Oregon College Savings Plan. Assuming a 10% Oregon state income tax, that results in a tax benefit of $244 (single) or $487 (joint) for contributions to the Oregon 529 plan.
While those tax benefits are enticing, we are beginning to wonder whether they compensate account owners for the frustrations they experience trying to navigate plan website, obtain information, and process contributions and distributions.
In addition, it is no longer possible to invest in funds within the plan in an à la carte manner. Instead, owners are required to invest in “College Enrollment Year Portfolios” or “Static Portfolios”. The former are described by the plan as “diversified portfolios that automatically move to more conservative investments as the beneficiary approaches the targeted year of college enrollment.” The problem with this approach is that there are funds in these portfolios that a well-informed and astute investor may wish to avoid. The latter are described as “… not automatically reallocated to more conservative investments as the beneficiary approaches college enrollment.” Instead, Static Portfolio investments remain fixed. These portfolios include “conservative,” “moderate,” “aggressive,” “balanced,” and “social choice balanced,” among several. The problem with these is that they are static. They do not change regardless of changes in the investment environment or as the beneficiary (the student) gets older. We much prefer the ability to build a portfolio using individual, low-cost funds, each representing a unique asset class. Unfortunately, that is no longer possible in the Sumday version of the Oregon 529 plan.
So, what should you do if you’re Oregon resident and you wish to save for the education of a child (yours or someone else’s) and you currently have an Oregon 529 plan? Well, you can keep your Oregon account and add to it by using one of the “college enrollment year portfolios” or one of the “static portfolios.” Candidly, this is not an ideal situation. However, it would you allow you to continue receive the Oregon income tax benefit. You could also keep the Oregon plan and open and fund a better plan in a different state. Many of Springwater’s clients use the Utah plan, My529. No, you would no longer receive the Oregon income tax benefit. You would also have two plans and that could prove a bit cumbersome. To simplify the situation, you could close your Oregon 529 plan and move it (tax-free) to the Utah plan.
If you are an Oregon resident, have not opened a 529 college savings plan, but plan to do so, you should think carefully about whether the tax benefit associated with the Oregon 529 college savings plan, administered by Sumday, is enough of an incentive to deal with the ongoing administrative problems and the limited investment options of the Oregon 529 plan.
PLEASE SEE important disclosure information at www.springwaterwealth.com/blog-disclosure/.