Missouri has long offered an attractive incentive to help families prepare for the formidable costs of college tuition.
The MOST 529 plan enables citizens to put money into college savings accounts and deduct the contributions from their state income taxes. Earnings on the accounts are exempt from federal and state taxes as long as the money is used to pay for tuition, room and board or other allowable post-high school education expenses.
Recent changes to the plan should make it even stronger and more appealing to investors large and small. With total student debt in the United States now up to $1.2 trillion, it makes sense to begin saving for college on the front end, and the earlier the better.
The changes in the state’s college savings plan come from a new management agreement announced by state treasurer Clint Zweifel and Ascensus College Savings, the MOST plan’s current manager.
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It reduces fees by 25 percent for most of the plan’s 155,000 accounts, of which about 28,000 belong to residents of the Kansas City area.
Investors who have entered the plan through financial advisers could save as much as 80 percent on fees. The state is ending the adviser portion of the plan and those assets will be rolled into the direct investment pool.
Overall, savings from reduced fees should reach about $20 million over five years.
“My focus has always been, how do we increase access to this program and keep costs low?” Zweifel said. He said fees for account owners have declined by more than 60 percent since 2009, making Missouri’s college savings plan one of the 10 least expensive offered by states.
Zweifel, who will be departing as Missouri treasurer next year after serving two terms, said that promoting the state’s college savings account has been among the most rewarding aspects of his job.
“What we have learned over the last eight years is that there is limited opportunity,” he said. “Getting into the habit of saving early makes a big difference later on.”
The number of Missourians who invest in the MOST plan or another 529 option is still low. Families could be using other options, but most aren’t saving at all. Fewer than half of all families put money away for college, and the numbers dropped among lower-income Americans, according to a study last year by Sallie Mae, the student loan corporation.
One barrier to investing in 529 accounts is the perception that getting started takes a significant pile of money.
Some states do require an initial deposit as high as $3,000. Missouri’s current minimum investment is just $25, but Zweifel said families soon will be able to get started for any amount.
Zweifel has pushed for businesses and nonprofit groups to create matching MOST accounts for low-income families and at-risk youths. Four such programs are operating in the St. Louis area and it is an option for groups in Kansas City that wish to invest in promising young people and also promote good saving habits.