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Choosing a 529 Plan

So you’ve decided that you want to save money for your child’s college education in a 529 College Saving Plan. Good decision! Now comes the hard part — figuring out which 529 Plans out there are best for your family.

Rules of Thumb for Choosing a 529 Plan

Here are a few general rules of thumb to follow in picking a 529 Plan. Remember, by choosing a particular plan, you are not committing your child to go to school in that state. The money invested in Utah’s plan, for example, can be used to attend college in Utah or any other state in the Union — and many schools abroad, too.

  • If you can get an income tax deduction from your state for investing in its plan, consider that plan first. And if you are a resident of Arizona, Kansas, Maine or Pennsylvania, you can get a deduction regardless of which state plan you contribute to — even better! (Here is a complete list of deduction limits by state.)
  • In addition to tax deduction benefits, investigate whether your state offers matching contributions for low-income families, preferential treatment for state financial aid, or other incentives. Even if you choose not to save everything in-state, benefits like these may make it worth your while to max out on your state plan first.
  • Seriously consider a direct-sold 529 Plan. Some states only offer plans sold by a broker, some offer direct-sold plans, and some offer multiple options. Even if you choose a direct-sold plan, you don’t have to be a stock market whiz to pick the right one. Just select an age-based plan from a low-fee investment house like Vanguard, which adjusts your risk level downward as your child gets closer to college age.
  • Regardless of whether you pick a broker-sold plan or a direct-sold one, make sure that you are comfortable with the primary indicators: past performance, fund-expense ratio and asset allocation (how the fund allocates its investments between stocks, bonds and other asset classes).
  • Carefully compare fees. If you are investing relatively small amounts of money, the expense of fees could cost you far more than what you gain in returns.
  • Think about where your child might attend college. If your kiddo is likely to study abroad for a semester or longer, for example, choose a plan that allows you to use your money for international study.
  • Make sure you meet the eligibility requirements of the plans you are considering. Can you open the account with the minimum contribution? Can you meet the monthly (or yearly) contributions? To compare 529 Plans by the features that are most important to you, try this nifty comparison tool at CollegeSavings.org.


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