JEFFERSON CITY — Starting in May, Missourians will have a wider array of tax-free investment choices for their college savings accounts as a result of a new state contract.
The deal announced Thursday by State Treasurer Sarah Steelman also will give college savers the option of enrolling in product loyalty programs, which would add corporate money to their savings accounts any time they buy certain products.
The Missouri Saving for Tuition program, or MOST, has been managed by New York-based TIAA-CREF since it began in 1999.
The new contract, which takes effect May 10, was awarded to a consortium led by Needham, Mass.-based UPromise Inc., which will serve as the program manager. The Vanguard Group Inc., based in Malvern, Pa., and Kansas City-based American Century Cos. Inc. will serve as investment managers, offering various mutual fund options for participants.
Steelman said investors should notice an improvement.
“They’ll have more investment choices, the funds that we’re offering will have improved performance over what we had before, they’ll have low fees and they’ll have a new loyalty program that allows them to save for college through regular expenditures that they have to make anyway,” said Steelman, whose office oversees the program.
All states have some version of the college savings programs, nicknamed ”529 plans” after the section of the federal tax code under which they are established. States typically contract with investment firms to manage the programs.
Savings in 529 plans grow tax-deferred, and withdrawals are tax-free when used for education. Missouri allows contributions of up to $8,000 annually to its state-endorsed savings plan to be taken as deductions on state income taxes. That tax deduction will not change.
Investors can enroll in the MOST program directly themselves or through brokers.
Whereas the current program offers three options for direct investors, the new contract will include 18 investment options run by Vanguard and American Century.
Similarly, people investing in MOST through brokers currently have eight TIAA-CREF fund options, but the new contract will offer 24 funds through 11 different fund families.
Whichever funds investors choose, they will be able to also enroll in corporate matching programs through UPromise or a St. Louis-based company called Simply Brilliant.
Under the UPromise program, companies such as McDonald’s, Coca-Cola and Exxon Mobile contribute a certain percentage to the purchasers’ 529 savings accounts every time they buy one of those products. Simply Brilliant offers a credit card that directs a certain percentage of all charges to the purchasers’ 529 plans, Steelman said.