State officials say New Mexico’s 529 college savings plan is underused asset

With the help of the state’s 529 college savings plan, Demesia Medina earned her bachelor’s and master’s degrees at Eastern New Mexico University, and now is a second-grade teacher at Chaparral Elementary School in Albuquerque. Courtesy photo

Not many New Mexicans seem to know about the state’s 529 college savings plan. Only 23,000 New Mexico 529 plan accounts belong to state residents.

Meanwhile, 107,000 accounts belong to out-of-state residents, most sought out by brokers looking for a good college savings deal for clients, said Ted Miller, executive director of The Education Trust Board of New Mexico, a state agency that oversees The Education Plan, which is New Mexico’s 529 plan. The board is within the New Mexico Higher Education Department.

What’s a 529?

Experts say it’s a way to save for a child’s college education or trade school by doubling or even tripling your money in a federally sanctioned investment account. Miller noted investments typically double in value, with 7 percent growth over 10 years.

Miller bemoans the fact that New Mexico’s 529 plan has a penetration of barely 1 percent among people who live here, while the nationwide average is about 3 percent.

“There is no reason New Mexico can’t get to 2 percent [penetration],” Miller said. “We can be at 40,000 [New Mexico account holders] in three years.”

Misperceptions abound about 529 plans:

• It’s only for universities (money can be used at community colleges and qualified trade schools such as for nursing, cosmetology and culinary arts).

• It’s too expensive (there’s no minimum amount or monthly deposit requirements).

• You can only invest in your home state’s 529 (consumers can invest in any state’s 529 and also roll accounts over from one state 529 to another).

A typical New Mexico account grows to $30,000 over 15 to 18 years. That typically pays the expenses of one year of college in New Mexico for allowable expenses that include tuition, books, room and board. The average New Mexico account has $22,808, said Jocelyn Black Hodes, The Education Trust Board’s outreach director.

The Education Plan is marketed through in-state advertising on radio, television, billboards, Facebook and Twitter, and an outreach team promotes the 529 plan at events and works with employers to add payroll deduction for 529 accounts, Hodes said.

Dolly Padilla of Albuquerque raised much more than $22,808 with $300 monthly deposits since the 1990s.

“If you consistently save every month, you can achieve great things,” Dolly Padilla said.

Her family’s 529 investments covered whatever scholarships didn’t to get daughter Demesia Medina through her bachelor’s and master’s degree programs at Eastern New Mexico University. Medina is now a second-grade teacher at Chaparral Elementary School in Albuquerque.

“I think that most parents focus too much on the day to day and don’t think enough about the future,” said Medina, who has taught at Chaparral for 5½ years.

Padilla’s other daughter, Jessie Medina, received a full-ride scholarship to earn her bachelor’s degree, and the 529 funds are being used to pay for medical school at the University of New Mexico.

“We wanted them to get out of school debt free,” Padilla said. “We started to pay for their education the day they were born. It was important for us to give our girls the gift of education.”

Section 529 of the Internal Revenue Code, enacted in 1996, provides tax-free savings in which even earnings on investments are tax exempt. They are investment vehicles similar to 401(k) or IRA retirement plans — but better, Miller said, because there are no contribution limits for a 529.

“In addition, New Mexico allows you a full state income tax deduction for contributions to the [529] program,” said Miller, adding only four states have full state income tax deductions. “It’s a tax-free way to pay for education.”

New Mexico’s plan is particularly popular for out-of-state enrollees because of the low investment costs, ranging from 0.15 percent to 0.5 percent, he said.

Miller stresses New Mexico’s well-known economic challenges shouldn’t automatically rule out opening a 529 account. He said an account can be opened with $1. People can save $25 a month — or only a few months a year. Any money saved for post-high school education, he reasoned, is better than no money saved.

He said parents saving for college can encourage kids to go to college.

“If a family has as little as $500 saved for college, a child is three times as likely to go to college and four times as likely to graduate,” he said.

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