If you participate in Washington’s Guaranteed Education Tuition (GET) plan, you may know that you have until September 12 to decide whether to transfer to the state’s new DreamAhead 529 plan. Though you could gain money by switching, there are many variables involved, and making a change is not as easy a decision as it may appear.
Here’s a little background and some pointers to help you choose:
Earlier this year, Washington passed a bill providing an incentive for GET owners who purchased before July 1, 2015 to roll over their GETs to DreamAhead. Those who make the move will see their GET units, now valued at $103.86 apiece, jump in value to $143 apiece.
How is that possible?
The state can do it because GET is currently sitting on a surplus reserve in the neighborhood of $600 million. Program administrators want to use some of that money to motivate GET participants to move to DreamAhead. The incentive they’re offering is a whopper—a bump-up in valuation of 38 percent.
So it’s a no-brainer, right?
Not so fast. There are significant differences between the two programs.
GET is a pre-paid tuition plan guaranteed by the state of Washington, making it a low-risk asset. But GET does have a potential downside: its rate of return is tied to the tuition cost of Washington’s highest-priced public university. The state legislature can change that cost, as it did in 2015/2016. If tuition drops or stagnates—either because of market forces or through legislative manipulation—it can have a negative effect on your returns.
The DreamAhead plan works differently. It’s a 529 college savings investment plan, with emphasis on the word investment. It’s not unlike an employee-funded retirement account: you choose the investments and you bear the risk and reward. Except for DreamAhead’s Cash Preservation Portfolio, all the investments will be subject to financial market risk.
To summarize: GET has a state-backed guarantee and its returns are tied to the cost of tuition. DreamAhead has no guarantee and its returns are tied to the financial markets. So part of your decision will depend on your risk tolerance.
Expenses are another consideration. You should be aware that DreamAhead has administrative and investment costs that aren’t a part of GET. Though the costs are moderate, they exceed those of other state-sponsored 529 plans.
We encourage all owners of GET units to slow down and think through the pros and cons of a rollover to DreamAhead. Revisit your financial goals and make sure they align with the risks and rewards of the DreamAhead plan. Don’t be enticed by that 38% bump in value until you’ve examined all the facets of both plans.
Even after you’ve done that, there’s a wild card that remains.
Sometime after September 12th, the administrators of GET will decide whether to allocate a portion of the remaining GET surplus to GET owners. So even if you don’t move to DreamAhead, you could get a bump in the value of your college savings plan. But it’s not a sure thing, and you can’t know how much it would be.
As you have heard us say a million times, we encourage you to speak with your financial planner before making any financial decision, especially one as important as your family’s investment in higher education.
The Seattle Times has published several articles on this topic. A good starting point for GETting up to speed is Got GET? Your account could be worth 38 percent more if you switch. And be sure to read the details on the Washington GET site, New Limited Time Options for GET Account Owners.