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About the LoneStar 529 Plan

The LoneStar 529 Plan® is an advisor-sold IRC Sec. 529 education savings plan. The Texas Prepaid Higher Education Tuition Board maintains and administers the plan. Participation in the tax-advantaged plan is available to all U.S. citizens or permanent resident aliens at least 18 years old with a valid Social Security number regardless of income or state of residence. The Plan is managed by Orion Advisor Solutions, Inc. You will be required to designate a financial advisor on your application when you enroll in the plan. A financial advisor is any individual or entity that is appropriately licensed and who has entered into an agreement with the plan distributor to distribute interests in the plan. This term may include brokers, and financial intermediaries, such as investment advisors or banks.

Some states offer favorable tax treatment to their residents only if they invest in the state’s own plan. Non-residents of Texas should consider whether their state offers its residents a 529 plan with alternative tax advantages.

Why Choose this Plan?

No matter how big an adventure your child chooses to embark on, the LoneStar 529 Plan can help you save for the education they need.

Tailored Investments from Trusted Industry Leaders

The LoneStar 529 Plan offers a wide range of investment options managed by industry leaders, Artisan, Baird, DFA, Dodge & Cox, Eaton Vance, Federated Hermes, Neuberger Berman, New York Life, PIMCO, T. Rowe Price, and Vanguard.

You can choose among a variety of investment strategies depending on your risk tolerance, time horizon, financial situation and other variables.

Low Investment Minimums and High Maximums

Open a LoneStar 529 Plan with as little as $25 (or $15 if funded through an Automatic Investment Plan (AIP)2) and contribute up to $500,0001 per beneficiary.

To ensure maximum savings, the Plan offers an Automatic Investment Plan (AIP).2 Choose the amount and frequency of contributions, and we take care of the rest!

The Ease of Online Account Maintenance

Once you open your account after consulting with your financial advisor on the investment options, you can manage your account online at your convenience, make changes to investment options, and handle other account maintenance tasks such as changing a beneficiary.

1. Additional contributions to your account will be rejected if it would cause the aggregate contribution balance of all Texas 529 program accounts for your beneficiary to exceed the Maximum Texas Program Contribution Limit, which is currently $500,000. This limit considers all 529 programs administered by Texas—the LoneStar 529 Plan, the Texas Guaranteed Tuition Plan, the Texas Tuition Promise Fund®, and the Texas College Savings Plan®—regardless of the owner(s) of the account(s).New contributions will not be allowed once this limit is reached, but earnings will continue to accrue. Consult your tax advisor for information on how 529 tax treatments would apply to your particular situation.

2. Automatic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.


Tax-free Growth

Earnings in the plan grow federal income tax free for the life of the account.

Tax-free Withdrawal

You can withdraw the money federal tax free, as long as it’s used to pay for qualified higher education expenses. When withdrawals are used for other purposes (a non-qualified withdrawal), the earnings portion of the withdrawal is subject to federal income taxes, and an additional 10% federal tax and for non-Texas residents, any applicable state income tax.

Use Your Savings at Schools in the U.S. and Abroad

You can use your savings to pay for qualified higher education expenses at most accredited institutions in the U.S., including career schools, two- and four-year colleges and universities, as well as at some foreign institutions.

Choose Your Beneficiary

Put money away for future higher education costs—whether for your child, grandchild, relative, friend, spouse or even yourself. Get more information on how others can contribute to your account through the Plan’s gifting feature..

Control and Flexibility

Because the 529 account is in your name, you retain control over when and how the savings are used. You decide when and how much to contribute, and control when to make withdrawals.

You can even change beneficiaries among qualified family members without penalty or tax ramifications.

Broad Range of Investment Options

The LoneStar 529 Plan lets you pick your path to investing by offering numerous investment portfolios based on risk tolerance, time horizon and financial situation. It’s easy to find one that suits your particular needs.

Use Your 529 Account for K-12 Tuition, Student Loan Repayment or Participation in a registered apprenticeship program

Under Section 529 of the Internal Revenue Code, assets in the Account can also be withdrawn on a tax-free basis for any of the following purposes:

  1. Fees, books, supplies and equipment required for the participation of a designated beneficiary in a Registered Apprenticeship Program;
  2. up to $10,000 per year of tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school as determined under applicable state law1; and
  3. up to $10,000 in amounts paid as principal or interest on any Qualified Education Loan of the designated beneficiary or a sibling of the designated beneficiary.

The $10,000 limitation for public, private, or religious schools applies on a per-student basis, rather than a per-account basis; therefore, a maximum of $10,000 may be funded from all 529 accounts combined for one beneficiary. Similarly, the $10,000 aggregate limitation on Qualified Education Loan Repayments applies on a per-student basis regardless of whether the funds are distributed from multiple accounts.

Before making contributions or withdrawals from the Plan for qualified expenses at K-12 schools, registered apprenticeship programs, or qualified education loan repayments, Account Owners should consider that (i) the Investment Portfolios within the Plan were designed for college savers (e.g., persons saving for undergraduate and graduate school) not saving for qualified expenses at K-12 schools, registered apprenticeship programs, or qualified education loan repayments, and therefore Account Owners should take into consideration their investment horizon, and (ii) the information presented is based on a good faith interpretation of the statutory language.

1. While federal law allows 529 plans to be used for certain elementary or secondary education tuition expenses, state tax consequences vary and may include the recapture of state tax deductions as well as penalties. You should consult with a tax or legal advisor in this regard.

Tax Incentives

Anyone can benefit from the tax advantages of the LoneStar 529 Plan, regardless of income level, tax bracket or financial situation.

Tax-free Withdrawal

You can withdraw funds in a 529 plan account to pay for qualified higher education expenses without incurring federal taxes.

Using account assets for any other purpose would likely be subject to federal income tax on any earnings as well as an additional federal tax of 10% and, for non-Texas residents, any applicable state income taxes. The state income tax consequences will vary by state, but there would be no impact in Texas because the state does not impose an income tax on individuals.

The state tax consequences of using 529 plans for K-12 tuition and other types of qualified expenses may also vary by state and could involve taxes, penalties, and the recapture of any state tax incentives or deductions.

Tax-free Growth

Earnings in 529 plans are not subject to federal or state taxes as assets in the account grow and if used for qualified higher education expenses. As the chart below shows, the tax advantages of a 529 plan could mean the difference between funding a higher education and coming up short.

Chart illustrating the benefits of tax free growth. The hypothetical example depicts the growth of $10,000 investments upon a child's birth made into a tax-advantaged account and a taxable savings account. Over 18 years with a 5% annual rate of return, the investment in a tax-advantaged account grew to $24,066 while the taxable savings account grew to $18,096.

This hypothetical illustration assumes an initial investment of $10,000 and a 5% annual rate of return. The taxable account assumes a 28% federal tax rate. The illustration does not represent the performance of any specific account or investment and does not reflect any plan fees or charges that may apply. If such fees or charges were taken into account, returns would have been lower.

Gift and Estate Tax Planning Benefits

In recognition of the importance of saving for qualified higher education expenses, 529 plans qualify for special gift tax exclusion. You can contribute up to $16,000 ($32,000 for married couples) annually per beneficiary, or up to $80,000 ($160,000 for married couples) prorated over a five-year period—without taxes.1

Keep in mind that your contributions are excluded from your estate.

Scholarship Withdrawals

Funds may be withdrawn without penalty if the beneficiary receives a scholarship (up to the scholarship amount), or in the event of the death or disability of the beneficiary. However, ordinary federal income tax and any applicable state income tax would be owed on any investment earnings.

1. If the Account Owner utilizes the special five-year lump sum exclusion and dies within five years of the funding date, the portion of the contribution allocable to the years remaining in the five-year period (beginning with the year after the Account Owner’s death) would be included in the account owner’s estate for Federal estate tax purposes. Clients should consult their tax advisor.