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Happy 529 Day! (Get the joke? It's 5/29!)
Alright, it's not exactly Christmas, but it's a great reminder to make the most of a 529 account if you or your child (or even a friend's or loved one's child) are planning for college. The advantages of these accounts are numerous: You contribute with after-tax dollars, which grow tax-free, and withdrawals are also tax-free when used for qualified education expenses, such as tuition, books, and more. Some states also provide extra tax benefits.
States have their own plans with various investment options and fees, but you're not restricted to your state's offerings. For instance, you might live in Florida but choose to open a 529 account through Utah's my529 plan.
With this in mind, Morningstar monitors the best 529 accounts available. Rankings are based on factors like fees, flexibility, and investment choices. As Karen Wallace notes, you should also consider the state tax benefits, even if the plan itself isn't ideal. As she says, “Morningstar researchers have calculated that a 5 percent state tax benefit is a generous enough incentive to... make up for less-than-ideal investment options and high fees.”
Here are the top choices for this year:
Utah’s my529 plan—This plan boasts low fees, strong investment options, flexibility, and an excellent tax benefit for in-state residents.
Virginia’s Invest529 plan—Virginia offers a range of diversified, age-based portfolios at an affordable price.
Nevada’s The Vanguard 529 College-Savings plan—According to Morningstar, “the plan’s age-based options still charge fees that are well below average compared to those of direct-sold plans that invest in passive funds.”
Illinois’ Bright Start Direct-Sold College Savings program
For a more in-depth review of your state’s (or another state’s) plan, check out the details here.
