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The Skinny on A 529 Plan: What It Is and Where to Fund It

What is a 529 plan, and how can it help your child achieve the best educational opportunities? Here is the skinny on what you need to know about a 529 college savings plan, including the best states in which to fund your 529 college savings plans.

What is a 529 College Savings Plan?

A 529 college savings plan is a special state-based college savings incentives program that helps you save money for your child’s college education. Not all states have a 529 college savings program that off the same kinds of benefits. Here are some things you should consider when you are choosing a 529 college savings plan.

Things to Consider When Choosing a 529 College Savings Plan

There are many important factors to consider when you are choosing a 529 college savings plan. First, you should consider the amount of time that your money will be invested. You should consider your family’s tax bracket, how many (if any) fees and sale charges are associated with the plan, what kind of fees are involved, how much you will be investing, and what kind of state income tax deductions are allowed when you contribute. Pay close attention especially to fees. Even the slightest difference in percentage points will eventually add up.

Consider the State Tax Benefits

When choosing your 529 college savings plan, take into consideration your own state tax benefits. What kind of special tax benefits, if any, does your states 529 plan offer you? Does your state let you deduct all or part of your contribution on your state income tax form? This is something to consider.

What Kind of Costs are Associated with the Plan?

There are some plans that come loaded with high fees that will inevitably begin to eat into your returns. However, there are other plans with lower costs. Some analysts point to the plans managed by Vanguard and TIAA-CREF as those that have lower fees and costs. Make sure you know exactly how much you will be paying in fees, including administrative costs, fund loads, management fees, and sales’ charges, both front-end and back-end. Ask for a list of all possible costs associated with the plan.

Consider the Different Investment Options

What kind of investment options are you looking for? Most state 529 plans offer different types of investment options. Decide what kind of investment style and performance you are comfortable with before you invest.

Who Has the Best 529 College Savings Plan?

Most analysts agree that it is a good idea to compare closely your own state’s 529 plans with the plans of at least two other states. Here are some things you should definitely consider when you are comparing different 529 college savings plans. First, consider what kind of state tax incentives will be available to you. Does one state’s 529 plan offer tax-free withdrawals or special deductions? Is the plan generally affordable for you? What kind of investment performance has the plan shown in the past? Is the plan flexible enough for your needs? Does the plan offer low costs? These are all things to consider when you are finding the 529 state college savings plans that work best for your family.

Ranking the Best 529 College Savings Plans

Many analysts have ranked the best 529 college savings plans. In general, most analysts agree that the following states have some of the most desirable feature: Pennsylvania, Texas, South Dakota, Iowa, Virginia, Arkansas, Maryland, New Jersey, Nebraska, Florida, Utah, Hawaii, Illinois, and Louisiana. Most analysts agree that most TIAA-CREF plans offer all-around desirable features. States with TIAA-CREF managed plans include New York, Idaho, Kentucky, Tennessee, California, Vermont, Georgia, Michigan, Connecticut, and Michigan.