Calculating Contributions to 529 College Savings Plans

Posted on Wed, Jul 21, 2021 ©2021 Drucker & Scaccetti

Savingsby: Olivia M. Seneca, MBA


College costs have skyrocketed over the last 20 years, causing parents to desperately search for the best savings options for their children’s education. Thankfully, there are a variety of plans to help families start saving from day one. Today, we will discuss Pennsylvania 529 Education Savings Plans, how contributions are calculated, how plans can be beneficial for any family, and how they vary from other state plans.


Pennsylvania Plans

  • Guaranteed Savings Plan (GSP)

This low-risk savings plan helps families increase the value of their investment, which is based on the current public and private tuition rates. Each family can contribute a maximum of $511,758 to a plan, with a minimum $10 contribution per transaction. See below for the factors that influence plan value at the time of distribution:


  1. Time of Initial Investment (Beneficiary Age)
  2. Tuition Level Chosen (Public vs. Private)
  3. Current Tuition Credit Rate
  4. Amount of Total Contributions

Each contribution is equivalent to a specific amount of Tuition Credit. At the end of each quarter, the credits are totaled and compared to the Current Tuition Credit Rate. The difference is known as the “Inflation Value”.


Here’s an example of how to compute plan value: If a parent contributes $200 a month to their child’s plan starting at birth, and they are planning to save for a public university tuition (Current Credit Rate of $1,552), each contribution is worth .129 credits. The investment value would be $2,402.50* at the end of the current year. This formula can also be used to calculate the total estimated value for distribution. The estimated total value of the investment would be $43,244.93** (over 18 years). As a reminder, this amount is likely to change, as the rates for Tuition Credits are likely to fluctuate over time.

* .129 credits * 12 months * $1,552 = $2,402.50

** .129 credits * 12 months * 18 years * 1,552 = $43,244.93


The GSP is safe compared to the Investment Plan, since the net earnings cannot dip below the amount contributed. Consequently, there will never be a loss on the GSP investment. There is a great deal of flexibility within the GSP related to the Tuition Credit Rate. The GSP allows contributors to change the Tuition Level at any time, in turn, changing the Tuition Credit Rate.


The GSP also offers significant tax benefits for Pennsylvania residents. Pennsylvania families can deduct up to $30,000 per beneficiary, per year, if filing jointly ($15,000 for single filers).


  • Investment Plan

This savings plan helps families increase the value of their college savings by investing in up to 17 investment options provided by the Vanguard Group. Below are the investment options available under the Pennsylvania Investment Plan:


 - Age-based Options (3 options)– Conservative, Moderate, and Aggressive
 - Static Portfolio Options (6 options) – portfolio that does not change over time
 - Individual Fund Portfolios (8 options) – mutual funds

The Investment Plan is considered riskier than the GSP, due to the fluctuations in the economy that may cause the investment value to change over time.


The Investment Plan also allows for a tax deduction for Pennsylvania residents of $30,000 per beneficiary, per year, if filing jointly ($15,000 for single filers). This plan is available to residents of any state.


State Differences

If you don’t live in Pennsylvania, most states have their own 529 plans that are comparable to those available from Pennsylvania. Click here for an interactive map for a full list of comparisons and options available in all states.


529 plans are a great way for families to save for college and to get a tax deduction for doing so. Talk to your tax or financial advisor about ways to maximize 529 plans in your family’s education savings plan.

Topics: Tax deduction, Pennsylvania, 529 Plans, college expenses, tax deferred

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