We’ve kept you apprised of updates as Washington’s GET program has undergone changes. There have been some recent developments that make it worthwhile to revisit this topic again. First we’re going to provide some background, then explain why it matters to you.
Concept behind the GET
As many of you college savers know, Washington State has a single 529 plan option, the Washington State Guaranteed Educational Tuition (GET) plan.
The GET plan is advertised as way for parents to pre-pay for tuition at today’s cost, for use in the future when tuition costs are higher. Theoretically, your investment should earn a rate of return equal to tuition inflation, however, now the reality is a little different.
Over the past decade tuition inflation increased significantly while bond yields declined. The underlying GET investments, primarily bonds, were no longer capable of keeping pace with rise in tuition cost. To offset this differential between rising tuition and lower investment returns, the plan added a premium to the GET unit price, thus the purchase cost is more than today’s tuition cost. For instance, the most recent GET unit purchase price was effectively $153.58 per unit and is currently valued at just $117.82 per unit. In addition there are imposed finance charges of 7.5% on for folks who pay monthly and want to tock in today’s unit price. Even with these inflators, college savers, still participated because of the potential to earn positive returns if tuition inflation remained high enough.
Things changed in the summer of 2015, when the state passed the WA College Affordability Act. This legislation mandated that tuition be reduced over the subsequent two years. As a result, tuition at UW and WSU declined 5% that year and another 10% the following year. To curb future tuition inflation, the legislation mandated that tuition increases not exceed wage inflation in the state of Washington. For reference, Washington wages have grown at less than a 1% rate over the past decade.
At that time, the state suspended new investments into the GET program to evaluate the impact on the long-term viability of the program under the new law. The redemption price of a GET unit has been fixed at $117.82 per unit for past four years. It will remain there until the cost of tuition exceeds $11,782, a 15.8% increase from current levels.
The value of a GET unit will not likely not grow for quite some time. Realizing this, Washington has allows investors to move their money out of the GET without penalty for a period of time. Since the offer was made, over $340 million dollars have moved out of the GET plan and into other programs. The state ensures you will receive at least your original investment if you remove your investment out of the program before the established deadline. Once the deadline passes and if you decide to remain in the GET, you do run the risk of receiving less than you contributed to the plan.
Washington’s desire to add a traditional 529 saving plan to their offering has been delayed from the end of 2016 to the summer of 2017. As a result, the State has extended the period of time to withdraw funds from the GET without penalty to September 1, 2017.
Remember, you are allowed to participate in any state’s 529 plan you choose. The advantage of investing in the 529 plan of your home state is the deductibility of contributions for state income tax purposes. Since Washington does not have a state income tax we can simply shop the country for the best plan available without regard to this potential benefit.
At Kaizen Financial Advisors, we help our clients find the best 529 programs to maximize their college savings and we guide them in making the most appropriate investment selections within their plans. As always, if you have financial questions, we are ready to serve you.