Using out-of-state 529 plans

Question

Dear Joe, I am 80-years old and I want my grandchildren, now ages 9 and 14, to go to college. I recently put a large sum in a MetLife 529 Virginia college fund. We live in North Carolina and they will go to a North Carolina college. The 529 plan says they can go anywhere; it does NOT state whether they pay an out-of-state rate if they attend college outside of Virginia. Nowhere does it say they won't and I need this in writing to ease my mind. How do I get this? -- Mary Anne

Answer

Dear Mary Anne,

I have some good news. Using an out-of-state 529 plan will not affect a grandchild's eligibility for in-state tuition rates at public universities in the home state. They will still pay the lower tuition for North Carolina residents even when the money used to pay that tuition comes from your Virginia 529 plan.

As a general rule, a beneficiary's choice of school -- whether it be in-state, out-of-state, public, or private -- does not affect the benefits derived from any of the more than eighty 529 savings plans. (The prepaid tuition plans offered by some states are a different story.)

Although a large number of American families decide to go outside their own states for a 529 plan, there may be special benefits available for using your home-state 529 plan. For example, North Carolina and many other states offer a state income-tax deduction for contributions made to the home-state 529 but not for contributions made to out-of-state 529 plans. Presumably, your financial adviser explained all this when recommending the Virginia 529 plan. The North Carolina deduction is available only for incomes below specified levels, and your own income may be too high.

I would also like to clear up some confusion in your question. MetLife does not operate Virginia's 529 plan; however, Virginia does offer a 529 plan through American Funds. I am assuming your financial adviser is a registered representative with MetLife, making MetLife the broker for your account in the Virginia 529 plan. (To make the situation even more confusing, North Carolina's 529 plan offers, as one of its investment options, the MetLife Protected Stock Fund, but that's clearly not what we are talking about here.)

You are doing a wonderful thing by setting up a 529 plan to help put your grandchildren through college and I hope everything works out the way you want it to.