Thursday, August 16, 2007

Choosing a College 529 Plan

Since we plan to cover our daughter's college education, we looked into college savings options not long after she arrived. My financial advisor helped me to quickly sort through the options, and recommended our state 529 plan. Contributions by residents were tax deductible, fees were among the lowest, and there was a great selection of funds. He added the qualification that they had just started recommending our state 529 plan after it added a new family of funds. Prior to that they were recommending other states' plans, even though there was a resident tax deduction for our state's plan. After reading the materials from the plan, I immediately sent in our first contribution.

For those who don't have a financial advisor, I'd recommend three sources for helping with one's decision.

How Stuff Works. This is one of my favorite Do-It-Yourself sites. It provides a great explanation of How 529 Plans Work and shares eight steps for Choosing the Right Plan. I consider the first three steps the most important: check one's own state, evaluate the plan manager, and estimate total fees. I would also add evaluating the the funds that are in the plan.

Saving for College. They have a great section on 529 plans with an introduction to 529s that includes answers to FAQs. In addition, they provide an evaluation of every state's plan with their 5-cap rating system.

Lazy Man And Money. Lazy Man shares his 529 Plan analysis which includes elements of the eight steps from How Stuff Works and uses information from the 5-cap rating system in Saving For College. His main criteria were: low minimum investment amount, low maintenance fees, low expenses, and good fund choices. Even though he lives in California, he chose plans from Ohio and Michigan as his top two 529 picks.

For more on Crossing Generations , check back every Thursday day for a new segment.

Photo Credit:, Jane M. Sawyer

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


Anonymous said...

Thanks for the link. However your readers might prefer to link to the main article and not the comments ;-).

You had it easy by living in a state that allows the deduction. It's much more difficult when you have to consider 50 states and over 100 plans.

Dimes said...

Which state do you live in? Which ones were the other recommended plans? I'm hoping this is going to become a problem for us in the next few years, picking a 529, I mean, and being in the military means that we probably won't be able to take a deduction, because my husband's HOR is a 3x30 state so he doesn't have to pay state income taxes anyway, rendering any deduction pointless. I've heard that Utah has a good plan, but we'll probably need to seek professional advice in regard to this issue.

Super Saver said...

Lazy Man,

Thanks for the coaching tip:-) I have updated the link.


To maintain anoniminity, I still haven't shared my state of residence :-) Apologies that I can't provide our specific 529 plan at this time.

As for plans to consider, I think Lazy Man did a nice analysis in choosing Ohio and Michigan plans. Other plans that had a 4.5 rating for non-resident, self-directed (i.e not advisor sold) plans were Minnesota, Nebraska and Maryland.

Depending on Mr. Dimes HOR, he may be able save on annual maintenance fee costs which are sometimes reduced (or zero) for residents.