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Under Section 529 of the Internal Revenue Code, assets in the Account can also be withdrawn on a tax-free basis for any of the following purposes:
- Fees, books, supplies and equipment required for the participation of a designated beneficiary in a Registered Apprenticeship Program;
- 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
- 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. Recent tax reform legislation changes allowing for payment of K-12 tuition were on a federal level, and the tax consequences of using 529 plans for elementary or secondary education tuition expenses will vary depending on state law and may include recapture of tax deductions received from the original state as well as penalties. The account owner should consult with a tax or legal advisor before using the plan for K-12 tuition.
