Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Thursday, September 15, 2016

MPACTing the Cost of College in Mississippi

Mississippi State Treasurer Lynn Fitch in conversation with
Mississippi Today editor Fred Anklam and reporter Adam Ganucheau.
Saving for college is an immense task for students and parents. The many rules around Federal Student Aid can make it hard to figure out the best way to pay for school when you have a lot of options. One of the most important tools is the 529 plan.

Each state operates a 529 plan which is a tax advantaged vehicle for paying for college. In Mississippi our plan is called MACS - Mississippi Affordable College Savings. How most of them work is something like a 401(k) retirement account: There is some state tax incentive to put money in, it is invested and grows tax free. What makes it even better is that the money withdrawn is not subject to Federal Income Tax when it is spent on qualified education expenses. General limitations of 529 plans involve the gift tax allowance, but each state's plan has different state income tax rules as well. We help a lot of clients set up these accounts (the State runs the plan) and are pretty familiar with them.

Mississippi has another, more rare, type of plan as well. The Mississippi Prepaid Affordable College Tuition (MPACT) does basically what it says on the tin - you can pre-pay college tuition for your child or grandchild. This allows you to lock in tuition rates now before they get out of control later. This type of plan is on the way out in most places, and only still exists in a small handful of states. It is, however, a very attractive plan if you want the confidence in locking in future tuition payments.

The trouble with these types of plans, and the reason that they are not common anymore, is that they rely on actuarial assumptions that just haven't held up. Assumptions about costs of tuition were too low and rates of return were too high, leading to a gap in the funded level of these plans. MPACT itself is short about $127 Million dollars. This is an obligation of the state, but the legislature has yet to fund it.. Speaking with Treasurer Fitch afterwards, she said that another possibility would be shifting the burden to the schools themselves.
It is important to note here that if you participated in MPACT at any time your contract will be honored. MPACT is backed by the full faith and credit of the State of Mississippi. You will get what you paid for.
At one point, MPACT froze new contributions while they figured out how to revise rates to ensure the solvency of the program. While this type of plan is disappearing, it is good that Mississippi is maintaining this option for the time being. While she would not say we are committed to the plan, Fitch said that they are continuing to evaluate how they can keep this important option available to Mississippians.

One of the really neat innovations Treasurer Fitch mentioned is bringing on the ability to buy single credit hours through MPACT or gift cards through MACS. We often have grandparents who want to contribute to their grandchildren's education but don't know the best way. Making gifts of individual credit hours would be a really interesting option.

Each of these options is a great tool for college and financial planning. The websites offer pretty clear information, and your financial advisor should be able to show which route is best for your situation.