Choosing a 529 plan

Once you've made the decision to take advantage of a 529 plan to save for your child's college education, you'll have to choose a plan. The thing is, there are nearly a hundred state-sponsored 529 plans to choose from. The decision may seem a bit overwhelming, but you'll do just fine, if you keep in mind these core factors.

Two ways to invest in 529 plans

You can select your plan directly through the plan provider. The other option is to use the services of a professional/broker who offers 529 plan products.

Should you use a broker?

We don't think it's necessary to have a broker involved in selecting the best plan for you. For one thing, broker-sold plans generally tend to have higher annual costs and may include sales charges—anywhere from 1% to 5.75% of your contributions each time you make one. Another issue is that many of the 529 plans that are sold directly invest in index funds that typically have low expense ratios. This is true of only a few broker-sold plans.

Some things to consider

  • State income tax deduction
    Depending on the state where you live, the 529 plans available usually allow a state income tax deduction for any 529 plan contributions. These deductions tend to be small—anywhere from a few hundred to a couple thousand dollars, but it can add up over time.
  • Financial aid
    You may be eligible for a matching contribution, a scholarship, or other financial-aid boost.
  • Creditor protection
    Your account may have the benefit of special protection from creditors.

Deal breakers

  • Low expense ratios
    You want keep underlying fees as low as possible for mutual funds and for simply having the account—for example, account maintenance fees, enrollment fees, and administration fees. This matters because the fees eat away at your total returns.
  • Limited investment options
    You want the flexibility to choose "age-based" portfolios or select individual mutual funds yourself as your beneficiary approaches college age. If aged-based flexibility is important to you, then consider only those 529 plans that offer this option. As you think about these investment options, keep your particular investment goals and risk preferences in mind—your investment choices may be different from your family members or best friends' choices.
  • Consistent long-term performance
    Performance comparisons are difficult to make, since investment options don't necessarily match up, and performance-reporting systems vary. Many 529 plans have short investment histories, and even those with longer histories may have made substantial changes to their portfolios along the way. Remember, with investments, past performance never guarantees future results.

Other considerations

  • Does the plan offer the ability for family members or friends to contribute into your child's 529 plan directly?
  • Is your plan linked to an accelerator program, such as Upromise Rewards or Fidelity's 2% Rewards MasterCard, that automatically deposit purchase rebates into a 529 plan?
  • What are the limits on the lifetime maximum contributions you can make into the plan?
  • What is the quality of the program's call center, which you'll need to contact when you have questions or need help?
  • What is the frequency and comprehensiveness of account statements or online resources?
  • How easy is it to make withdrawals, and does your state impose a tax on qualified withdrawals?


If it turns out that you made an inappropriate choice, don't worry. Keep in mind that you are not locked into your original choice of a 529 plan. You always have the ability to rollover your account to another 529 plan (subject to rollover requirements).

Finding help on the internet

  • Saving For College has a wealth of information dedicated solely to provide consumers with information on Dection 529 plans and other planning alternatives.
  • The College Savings Plan Network has information on prepaid tuition plans offered by states.
  • FinAid offers savings calculators and information on all forms of college financial aid, including loans, grants and scholarships.
  • NASD, which regulates brokers and dealers, has an "Investor Alert" section on 529 plans with a detailed discussion on fees and costs.
  • The Securities and Exchange Commission (SEC) has a wealth of information on 529 plans and useful guidelines for assessing a plan's performance.

More commonly asked questions

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