"Unlike other investment choices, CollegeBoundfund, the state’s 529 college savings plan, offers special advantages for Rhode Island families who want to save for their child’s future higher education costs."
Gail Mance-Rios is acting executive director of the Rhode Island Higher Education Assistance Authority, which provides oversight for the R.I. State Grant Program, CollegeBoundfund and WaytogoRI, a free website offering career and college planning tools for students, educators and families.
She has been in the student assistance profession for more than 30 years. She regularly speaks on financial aid and admissions to parents and students, most recently at the National Association for College Admission Counseling College Fair in Providence.
Mance-Rios has a bachelor’s degree in anthropology, history, philosophy and religion from Ithaca College and a master’s degree and certificate of advanced study in counseling psychology and student development from the State University of New York at Albany.
PBN: What is the major advantage of Rhode Island’s CollegeBoundfund, compared to other investments parents or grandparents might make for their children’s education?
MANCE-RIOS: Unlike other investment choices, CollegeBoundfund, the state’s 529 college savings plan, offers special advantages for Rhode Island families who want to save for their child’s future higher education costs. With CollegeBoundfund, it’s easy to get started and families can select from a wide range of investment options, ranging from passive and active age-based portfolios to individual fund portfolios, including a stable value option.
Investors benefit from federal tax-free growth and Rhode Islanders are eligible for a state income tax deduction for contributions, which are up to $1,000 per year for married couples filing jointly and $500 per year for single filers, with an unlimited carry-forward. When contributions are ready for use, the qualified withdrawals are free from federal tax and Rhode Island state income tax.
An important advantage is that CollegeBoundfund continues to be low cost. For Rhode Islanders, the annual account fee of $25 is waived and the new age-based investment options offer diversified portfolios at the lowest cost available to state residents.
PBN: What does section 529 of the Internal Revenue code cover and what types of education can a 529 plan be used for?
MANCE-RIOS: Under Section 529, plan investments may be used to pay for required tuition and fees, room and board, and the cost of necessary books and required equipment and supplies for students enrolled at accredited colleges and graduate schools. It can also be used for many post-secondary vocational and trade schools across the country and even some foreign institutions.
PBN: About a year ago, CollegeBoundfund earned a poor performance rating from the Chicago-based investment research firm Morningstar. The criticism was based on Morningstar research that determined the investments had been under-performing and concern about turnover in the staff managing the fund at AllianceBernstein. Morningstar said the fund had also been rated poorly in a couple of previous years. What has changed since then?
MANCE-RIOS: While the RIHEAA sponsors CollegeBoundfund, the investment options are overseen by the Rhode Island State Investment Commission. To strengthen the program, the SIC, led by R.I. General Treasurer Gina Raimondo’s office, has worked with the plan’s program manager, AllianceBernstein, to expand and modify the program's investment options.
Recent enhancements include adding a first-of-its-kind Age-Based Index Portfolio, designed to track Morningstar’s 529 College Savings Moderate Index series. We also modified some of the underlying funds in the Active Age-Based and Fixed Allocation Portfolios and the Individual Fund Portfolios, as well as adding an inflation-linked bond option.
CollegeBoundfund continues to be a popular choice in Rhode Island, and across America. For years, savingforcollege.com, a leading online resource about college funding and Section 529 plans, has given CollegeBoundfund a high rating, which is currently 5/5 and 4.5 cap rating, respectively, for its Direct and Advisor series in Rhode Island.
PBN: CollegeBoundfund recently added a first-of-its-kind Age-Based Index Portfolio, which is designed to track the Morningstar 529 College Savings Moderate Index Series. Is that the first-of-its-kind in Rhode Island or in the U.S.? What’s the reason that was added and what is the benefit?
MANCE-RIOS: The first advisor-sold, age-based, passive strategy in the United States, the Morningstar 529 College Savings Moderate Index Series, provides CollegeBoundfund investors an additional age-based choice. Implemented with passive strategies, this fund has lower overall fees than the longstanding actively managed age-based strategy. Between these complementary age-based options and the individual fund choices, we feel CollegeBoundfund is one of the most comprehensive college savings programs in the country.
PBN: What are the biggest myths about CollegeBoundfund and college debt, and what’s the reality that destroys those myths?
MANCE-RIOS: A common myth we hear is that financial aid will be reduced because of these savings. The reality is that all assets are considered when awarding need-based financial aid. The impact of a CollegeBoundfund account owned by a parent is estimated to be 5.6 percent of the value of the account—that’s only $560 for every $10,000 saved. On the other hand, a student-owned account, such as a UGMA & UTMA Custodial Account, is assessed at 20 percent. Since a majority of student aid is now student loans, saving in a 529 plan like CollegeBoundfund is a favorable approach from a financial aid perspective.
Also, some families think their child will be required to attend a four-year college in Rhode Island. The reality is that the student can attend any eligible higher education institution, including two-year, four-year, public or private, as well as many post-secondary vocational and trade schools throughout the U.S.
Another common misconception is that a family needs a lot of money to open a CollegeBoundfund account. The reality is that Rhode Islanders can open an account for as little as $1 per month with an automatic deposit. Through the plan’s online gifting tool, friends and family can contribute throughout the year and help with college savings goals.
Parents also wonder what happens to the account if their child doesn’t want to go on to higher education after high school. They can transfer the account to another family member or use it themselves to go to school. The account can also be maintained in the event the child changes his or her mind, since there’s no time limit. It can also be saved for the child’s children. The money can also be withdrawn and not used for higher education, subject to tax on the earnings and a 10 percent federal penalty tax.
We want to debunk these myths and increase awareness about the value of 529 plans. When families have accurate information, they can take advantage of the benefits of the CollegeBoundfund and help their loved ones start saving for their future education, sooner rather than later. Information on the