A 529 plan can be a great way to save for your child’s future. While you won’t get any federal tax breaks, many states offer state tax breaks when you contribute to a plan. And the money grows tax-free, as long as the beneficiary withdraws the money for qualified education expenses.
What to Look for in a 529 Plan
It’s important to be picky when you are looking for a 529 plan. You want to make sure that you are getting the best for the child in your life, and it’s nice to know that your money is being put to good use. When considering a 529 plan, you want to first make sure that your child will be able to go to any school he or she wants to attend. Most state plans are good at schools in other states, but there are some plans out there that restrict your choices. First of all, make sure that there are more options for the child’s schooling.
Next, look at investment options and fees. Some states sell plans directly, which means that there are lower fees involved. A state that has a plan that is broker run can cost a little more, coming with higher fees. Another consideration is what types of investment options you have with the state plan. Many states allow you to add funds to your 529. Find out whether the funds come with high fees. A range of low-fee fund options can be a great choice.
Finally, consider state tax deductions. Some states, like Texas, Nevada, Florida, and others offer no tax benefit for plans at all. Most states, though, at least offer a tax break for in-state residents who invest in the state’s plan. A few states, like Maine, Pennsylvania, Missouri, Kansas, and Arizona will give you a state tax deduction for investing in any 529 plan — even if it isn’t your resident state’s plan.
Five Best 529 Plans for Good Value
If you are looking for a 529 plan, you might try one of the following 5 plans that offer solid value:
- Ohio: This is the plan that I invest in for my son. Ohio offers a wide range of low-cost investment options. Plus, it’s sold through the state so the fees are a little lower. I don’t get a tax deduction for my contributions, but Ohio residents can get a deduction for up to $2,000.
- Virginia: Once again, this plan is administered through the state. What’s awesome about Virginia’s plan is that, while residents can only deduct $2,000 a year, you can carry the excess forward to other years. Plus, if you are more than 70 (making contributions for the grandkids) you can deduct the full amount of your contribution.
- Iowa: The plan sold by Iowa is direct, so you have the lower fees. Iowa’s inflation-adjusted contribution is currently $2,975 per beneficiary (2012). There are some solid investment choices, including low-cost funds from Vanguard.
- Nebraska: There is a reasonably generous $2,500 tax deduction for residents ($5,000 if you’re married, filing jointly). You do need to be careful, though, since Nebraska has a direct version and a broker version. If you want to save on fees, the direct version is likely a better choice.
- Illinois: The biggest advantage to the direct-sold Illinois plan is the $5,000 deduction ($10,000 for joint filers) for resident contributions to the 529 plan.
Readers: What’s your college 529 plan of choice?