Find the top plans. Contrary to what you might think, you don’t have to go with the 529 plan that your own state offers. Instead, you can pick from among the best 529 plans around the country. The experts at Savingforcollege.com and Morningstar have picked plans from Nevada, Utah, New York, and Alaska as some of the best and most inexpensive plans around. T. Rowe Price Group, Inc. (NASDAQ:TROW) runs the Alaska plan with its low-cost, highly rated investment options, while Vanguard has a hand in the New York, Nevada, and Utah plans. With investments like the institutional-fund equivalent of Vanguard Total Stock Market ETF (NYSEARCA:VTI), you can get the growth potential of owning stocks at rock-bottom fees.
Don’t overpay. By contrast, some companies that provide investment options for 529 plans charge extremely high fees. Several low-rated plans are managed by AllianceBernstein Holding LP (NYSE:AB)‘s fund-investment group, with investment options that have had lackluster performance with relatively high costs. In 2012, Morningstar pointed out Schwab U S Broad Market ETF (NYSE:SCHW)‘s Kansas 529 plan as having the highest fees of any direct-sold plan, arguing that “the expense ratios on the [investment] options are so high that they make it very unlikely that the plan will outperform over the long term.”
Look for extra breaks. Some states offer special benefits for residents who pick their plans, including breaks on state income taxes. Those perks can be a good tiebreaker in considering the best plan for you, although they shouldn’t drive your decision entirely. Sometimes, even plans offering local tax savings have high costs that outweigh the benefits.
Take a closer look
529 plans can be a great answer for parents and grandparents looking to help students out with their college expenses. To get even more useful information, click here to learn more about 529 plans and various other college savings options at your disposal.
The article Why 529 Plans Are the Answer for College Savings originally appeared on Fool.com and is written by Dan Caplinger.
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