How to Pick the Best 529 College Savings Plan for You

Here's a piece from Money magazine that details the steps to picking the best 529 college savings plan for you and your kids. It starts by picking a direct-sold 529 (one that you invest in directly from the state -- not from a planner who's going to charge you several percent to "sell" you the plan):

Personally, I believe that everyone should invest in a direct-sold 529 plan, which most states offer in addition to an adviser-sold plan. Here's how to find the right one:

• Start with your home state. You can find information on tax deductions and fees for every state plan at collegesavings.org.

• Consider costs. Even if you get a state tax break, you may save more over time by going with a lower-cost 529 in another state.

Say you invest $10,000 in a 529 and you can deduct your contribution on your state return. If your local tax rate is 5%, your net tax savings (after 28% federal taxes) is $373.44. In this example, if a plan charges 0.4% less than the one in your home state, the lower fees will eventually outweigh the tax savings in 10 years.

• Select an age-based investing option. In an age-based fund, your stock and bond mix will automatically get more conservative as your child approaches college age.

And remember, any money you aren't using to pay your planner can go toward funding your child's education.

This is exactly what I did a couple years ago when I picked Michigan's 529 plan. I've since contributed the maximum to get the full state tax deduction for each tax year (2006, 2007, and 2008), and I plan on doing so until the kids leave for college. This savings, along with the $2k we put into our Coverdells each year, should set us up to pay for college without too much impact on our other accounts.

Comments

[CollegeSavings.About.com - Ken Clark, CFP]

Great write up!

I'm personally a fan of the Arkansas plan... for residents (which will include me shortly), they actually match your contribution up to $500.

Pretty cool!

Ken Clark, CFP
Guide to Saving for College at About.com

[Paul]

Oregon state college savings plan allows for a state tax deduction max of 2000 per year per child. dollar for dollar.