Planning for your child’s education is one of the most thoughtful steps you can take as a parent. With the rising cost of college tuition, finding the right way to save is crucial—and that’s where a 529 plan comes in. But with so many options available, how do you choose the best 529 plan for your family?
This guide will help you understand what a 529 plan is, key features to compare, and how to select the best one based on your unique needs.
What Is a 529 Plan?
A 529 plan is a tax-advantaged savings account specifically designed to help families save for education expenses. The money you invest in a 529 plan grows tax-free, and withdrawals are also tax-free when used for qualified education expenses such as tuition, books, room and board, and even some K-12 costs.
There are two types of 529 plans:
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Prepaid Tuition Plans – Let you lock in today’s tuition rates for future use.
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Education Savings Plans – Function like investment accounts, allowing your savings to grow based on market performance.
Key Factors to Consider When Choosing a 529 Plan
1. State Tax Benefits
Start by looking at your own state’s 529 plan. Many states offer tax deductions or credits for contributions to their in-state plan. Even if your state’s plan isn’t the top-rated nationally, the tax break might make it the best option for you.
However, some states don’t offer any tax benefit—or they allow you to deduct contributions to any state’s plan. In that case, you’re free to shop around.
2. Fees and Expenses
Every 529 plan comes with some fees, including:
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Management Fees
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Fund Expense Ratios
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Maintenance Charges
Lower fees mean more of your money stays invested. Look for a plan with low-cost investment options and no unnecessary administrative charges.
3. Investment Options
Each 529 plan has different investment portfolios. The most common ones are:
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Age-based portfolios that automatically become more conservative as your child gets closer to college.
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Static portfolios where you choose your mix of stocks and bonds and it stays constant.
If you’re not comfortable managing investments yourself, an age-based option is typically the easiest and most hands-off approach.
4. Plan Reputation and Performance
Look for plans that have a history of solid performance. You can review ratings and rankings from trusted sources like Morningstar, which evaluates plans based on fees, performance, and governance.
5. Ease of Use and Online Tools
A user-friendly website and strong customer support make managing your account easier. Many plans offer mobile apps, automated contributions, and useful calculators. Choose one that simplifies your savings journey.
Should You Choose an In-State or Out-of-State Plan?
If your home state offers a strong tax benefit, it may make sense to stick with your state’s plan. But if the plan has high fees or limited investment options, a top-rated out-of-state plan may be the smarter choice.
Top-performing plans from states like Utah, New York, California, and Nevada are often recommended due to their low costs and strong investment options—even if you don’t live there.