Despite their advantages, only 29% of college-saving parents use 529 plans, according to Sallie Mae’s 2018 report “How America Saves for College.” In many cases, parents could end up with more money saved by using a 529 plan rather than, or in addition to, a general savings account.
But since there are many 529 plans to choose from, the decision can be complex. First, take note of whether your state offers a tax break for choosing the local plan. Then calculate how much it could be worth to you based on your expected 529 plan contributions, income and filing status. Vanguard, Fidelity and other sources offer online 529 state tax benefit calculators. If you’re not getting meaningful savings—or another state’s plan offers substantially lower fees or broader investment choices—you’re not bound to using your own state’s plan.
When you’re comparing 529 plans and underlying investments, also check the total annual fee you’ll be charged, including not only management and state fees but the costs of the investment portfolios themselves. Some 529 plan websites make that easy to do, while others may not; be sure to ask if the plan costs aren’t clear. Fees can reduce your investment earnings, and while some fees are inevitable, understanding how much they add up to will help you compare plan options.
Some states offer two types of 529 plans: one sold by the state directly to consumers and one sold by financial advisors only. In each case where a state offered both types, the direct-sold plan was higher-rated based on Savingforcollege.com’s analysis. As a result, we’ve included only direct-sold plans on our list.
Some 529 plans also provide useful consumer-friendly features that might be important to you, like an online platform where friends and family can make a contribution to your child’s plan. Look into the perks and extras available from your state’s plan.
