Finding the Right 529 Plan - Its in the Details!

Your first task as an investor is to determine whether you will invest with the 529 plan directly or use a financial adviser. If you need help deciding see our article on Direct vs Broker 529 plans. Once you have decided how you will proceed, the hard work begins! Start with your state 529 plan Start by investigating your own state's 529 plan. Some states offer residents tax deductions (or credits) for investing in-state, or offer to match contributions in some way. Some states have rules that tax you when you make withdrawals from an out of state plan. Find out the details about your state's 529 plans. If your state offers no tax benefits, matching or cost when going 'out-of-state' you are wise to search across the nation's 529 plans to find the ones with the features that suit you best. Compare with out-of-state plans You should research the plans available to you in some detail. A savvy investor will compare the detailed features of each plan against another to see which offers the best combination. Plans have many features, so to help you compare we suggest tackling this comparison in 3 steps. Step 1: Identify any "must have" features. Here are just a few examples of specific needs that families may have. I need a 529 plan that: Other family members can make contributions into Allows for joint ownership or transfer of account ownership at any time Has a minimum contribution level that I can meet Step 2: Identify the plans offering the best investments within your risk parameters. This exercise is not much different from picking mutual funds for your IRA or 401(k). Are you confident the investment managers in a 529 plan are going to do a good job for you? Are you a conservative investor or an aggressive one? Do you prefer an "age-based" approach that automatically adjusts the market risk of your 529 account as your beneficiary approaches college? Do you want your college savings invested only one company's mutual funds? Or would you prefer a "multi-managed" program that blends together mutual funds from different fund companies. The investment vetting process is neither easy nor certain. Many 529 plans have short investment histories, and even those with longer histories may have made substantial changes in their portfolios along the way. Remember that in investments, past performance never guarantees future results. We have rated the Top 10 performing Direct-Sold 529 plans. Step 3: Identify any other important differences between programs which could be as simple as online account access or how good customer service is. Program fees and expenses are an obvious consideration, as they will directly impact your return. Less-obvious considerations include such things as: the quality of the program call center when you have questions or need help; the frequency and content of account statements or online resources; the ease of requesting withdrawals and the likelihood that your state will not impose tax on qualified withdrawals. Remember, however, that you are not locked into your original choice of 529 plan. A concern that crops up later can often be alleviated by rolling over your account to another 529 plan (subject to rollover requirements). Now...Compare Plans Side by Side To make it even easier, we have created a tool for you that allows you to select different plan features and compare plans side by side. We suggest taking the questions above and seeing how different plans address your specific needs. Compare features - Direct sold plans Compare features - Broker sold plans Your first task as an investor is to determine whether you will invest with the 529 plan directly or use a financial adviser. If you need help deciding see our article on Direct vs Broker 529 plans. Once you have decided how you will proceed, the hard work begins! Start with your state 529 plan Start by investigating your own state's 529 plan. Some states offer residents tax deductions (or credits) for investing in-state, or offer to match contributions in some way. Some states have rules that tax you when you make withdrawals from an out of state plan. Find out the details about your state's 529 plans. If your state offers no tax benefits, matching or cost when going 'out-of-state' you are wise to search across the nation's 529 plans to find the ones with the features that suit you best. Compare with out-of-state plans You should research the plans available to you in some detail. A savvy investor will compare the detailed features of each plan against another to see which offers the best combination. Plans have many features, so to help you compare we suggest tackling this comparison in 3 steps. Step 1: Identify any "must have" features. Here are just a few examples of specific needs that families may have. I need a 529 plan that: Other family members can make contributions into Allows for joint ownership or transfer of account ownership at any time Has a minimum contribution level that I can meet Step 2: Identify the plans offering the best investments within your risk parameters. This exercise is not much different from picking mutual funds for your IRA or 401(k). Are you confident the investment managers in a 529 plan are going to do a good job for you? Are you a conservative investor or an aggressive one? Do you prefer an "age-based" approach that automatically adjusts the market risk of your 529 account as your beneficiary approaches college? Do you want your college savings invested only one company's mutual funds? Or would you prefer a "multi-managed" program that blends together mutual funds from different fund companies. The investment vetting process is neither easy nor certain. Many 529 plans have short investment histories, and even those with longer histories may have made substantial changes in their portfolios along the way. Remember that in investments, past performance never guarantees future results. We have rated the Top 10 performing Direct-Sold 529 plans. Step 3: Identify any other important differences between programs which could be as simple as online account access or how good customer service is. Program fees and expenses are an obvious consideration, as they will directly impact your return. Less-obvious considerations include such things as: the quality of the program call center when you have questions or need help; the frequency and content of account statements or online resources; the ease of requesting withdrawals and the likelihood that your state will not impose tax on qualified withdrawals. Remember, however, that you are not locked into your original choice of 529 plan. A concern that crops up later can often be alleviated by rolling over your account to another 529 plan (subject to rollover requirements). Now...Compare Plans Side by Side To make it even easier, we have created a tool for you that allows you to select different plan features and compare plans side by side. We suggest taking the questions above and seeing how different plans address your specific needs. Compare features - Direct sold plans Compare features - Broker sold plans