It has been over twenty years since its inception and 529 savings plans still remain popular and for good reason; It is a useful tool to help families save for education expenses. But where do you start? Many believe you are only permitted to contribute to your home state’s 529 plan, but in reality, you are free to choose any plan in any state, so it’s worth evaluating your options. Each state offers a 529 savings plan, and some states make two types of plans available, direct-sold and advisor-sold. Comparing the various plans can be challenging, but don’t let it stop you.
There are many factors to consider when evaluating the most appropriate plan. Here are three key areas you need to look for when deciding on which plan to chose.
Each plan will have a different investment lineup to choose from and many of these plans offer a litany of investment options covering a wide spectrum of the investment universe. The diverse investment options range from managed funds, indexed funds, age-based, risk-based to certificates of deposit insured by FDIC. Look for a robust set of underlying investments, which complement your risk tolerance, time horizon and investment philosophy.
State Tax Benefits
Some states offer unique tax benefits for account owners who contribute to their state’s plan, while others provide benefits for investments in any state 529 plan. These special tax benefits often come by way of state income tax deductions or credits, which may add up to significant savings. There’s also a few states that still offer a matching grant program as well. While evaluating your home state’s 529 plans are a good starting point, another state may have better benefits for your situation.
Fees and expenses will reduce your investment performance, so comparing overall expenses of a plan is very important. Program fees and account maintenance fees are charged directly by the 529 plan provider and are generally the same amount regardless of the investment options you select. These expenses are separate from any underlying fund expenses. The underlying fund expenses are charged to cover the fund’s total annual operating costs.
Yes, there are a lot of possible options for you to consider. But don’t allow the evaluation process slow you down from saving for college. Fortunately, you have the opportunity to change plans at a later date if you feel there is a plan that is a better fit.