The best 529 plans to help pay your kids’ education

The best 529 plans to help pay your kids’ education
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A 529 plan a tax-advantaged savings plan that is the best way to save for your kids’ education. Prior to this year, 529 plans would allow you, a relative or a friend to put money aside as an investment for a child’s college education. Now, thanks to changes in the tax code, money in a 529 can be used to pay for tuition at private schools for kindergarten through 12th grade, as well! The money grows tax free and is spent tax free for eligible expenses like tuition, books and fees.

I have done research on all the non-commission 529 plans around the country and the trend from last time is continuing. The 529 plans are steadily better and better in many states. I love how the costs for you are now below the average costs for a mutual fund!

In a handful of states, the only recommended choices are index age-based plans. Some states now have both age-based portfolios with high costs and index-age based plans with low costs. In my current update, I only include plans that charge less than 1% per year to manage your 529 account. The best plans are below 0.4% per year. That means almost none of your money is being diverted to the 529 manager allowing greater savings for your kids’ learning.

Read more: How to get an apprenticeship and avoid student loan debt

Here’s an explanation of how the 529 plan system works

One state, many plans

529 plans must be sponsored by a state even though residents of most states can put their money in any state plan. (Just because you invest in the plan of a state where you don’t live, that doesn’t mean your child will have to eventually go to school in that state.) Even more confusing, a state can sponsor more than one 529 plan. Three states have 5 different plans! I have never found more than one top flight plan in any one state.

When you see your state listed below, make sure you only invest in the exact state plan I show. That’s the key. Otherwise you could end up in a stinker of a plan. I have a direct link for you to the good plan in a state and you can usually invest directly online. If you just click on my link below you won’t mess up and go to a bad state option!

In total, my 529 Guide includes two lists for you — a Dean’s List with High Honors and my Honor Roll. If your state is on either list, choose it, because there may be state tax benefits that would make it a wiser choice for you. However, if your state is not listed or you do not qualify for your state tax benefits, put your money in Utah, Iowa, New York, Georgia or Michigan. They are my five favorite plans in the country because of extremely low costs. First among equals is Utah, with the nation’s finest 529.

By the way, here’s why 529 plans remain a better choice than pre-paid state school tuition plans.

Taking the set it and forget it approach

When you open a 529 account, do it in your name — not your child’s name. Your child should only be listed as a beneficiary. Assets in a 529 plan have very little effect in the financial analysis of most schools because kids are only listed as the beneficiary, not the owner.

Your money in a 529 plan is invested in a pool much like a mutual fund. I recommend that you look at the investment option available in most plans known as the “age-based portfolio.” This lets the plan adjust to a more conservative mix of investments as your child gets closer to college age.

With an age-based portfolio, when your child is two or three, the plan may be heavily invested in stocks. As they reach 15 or 16, the plan will have less stocks and more bonds. This adjustment is done automatically by the fund’s manager. No action is required on your part. It’s true “set it and forget it.”

A special note about ABLE accounts

For parents of children with disabilities, there exists something called an Achieving a Better Life Experience (ABLE) account.

According to the Social Security Administration, “An ABLE account is a type of tax-advantaged account that an eligible individual can use to save funds for the disability-related expenses of the account’s designated beneficiary, who must be blind or disabled by a condition that began before the individual’s 26th birthday.”

The money can be spent on qualified disability expenses such as education, housing, transportation, job training and more.

Click here for more info on ABLE accounts

Save for retirement before education

You and I can’t control education costs. We can’t control investment returns.  However, we can save money to defray college expenses and we can choose low-cost plans for our kids 529s.

Yet while wanting to save for your kids’ education is great, remember my first rule: You shouldn’t save a penny for education unless you are already saving the maximum you can for your own retirement. College can be paid for with grants, loans, scholarships and work. Retirement happens only if you have saved the dough.

What happens if  your child doesn’t need the 529 money? For starters, it can be transferred to any other child and spent tax free. Or if your child qualifies for a “free ride” full scholarship for college, you can withdraw the 529 money and use it for anything and just pay tax on the earnings. And finally, if your child winds up not going to college at all and you just take the money for yourself, you pay the tax on the earnings plus a 10% penalty.

For more money-saving advice, see our Education section.

Dean’s list with high honors:

These are the very best plans in the country. Put your money here if your state isn’t listed in the Honor Roll.

State Plan information
California The Scholarshare College Savings Plan
Utah Utah Educational Savings Plan Trust (Vanguard age-based portfolios only)
Iowa College Savings Iowa
New York New York’s College Savings Program – Direct Sold
Minnesota Minnesota College Savings Plan
Georgia Path2College 529 Plan
Michigan Michigan Education Savings Program
Wisconsin Edvest 529 College Savings Plan

Honor roll:

If you are a resident of a state below, enter that plan to get state tax benefits and/or lower expenses offered to residents.

State  Plan information
Alabama CollegeCounts 529 Fund (Age-based portfolios only)
Alaska University of Alaska College Savings Plan
Arizona  Fidelity Arizona College Savings Plan (Age-based portfolios only)
Arkansas iShares 529 Plan
Colorado CollegeInvest Direct Portfolio
Connecticut Connecticut Higher Education Trust (Direct sold only)
Delaware Delaware College Investment Plan (Age-based portfolios only)
Illinois Bright Start College Savings Program Direct Sold Plan (Index age-based only)
Indiana  College Choice 529 Direct Savings Plan
Kentucky  Kentucky Education Savings Plan Trust (Age-based portfolios only)
Louisiana  Start Saving Program
Maine  Next Gen College Investing Plan – Client Direct Series
Massachusetts  U.Fund College Investing Plan (Index age-based only)
Mississippi  Mississippi Affordable College Savings Program
Missouri MOST – Missouri’s 529 College Savings Plan
(invest only in Vanguard options)
Nebraska Nebraska Education Savings Trust – Direct College Savings Plan
Nevada  The Vanguard 529 Savings Plan
New Hampshire  Unique College Investing Plan (Index age-based only)
New Mexico  The Education Plan’s College Savings Program – Direct Sold (Index age-based only)
North Carolina  North Carolina National College Savings Program
(invest only in Vanguard options)
Ohio  Ohio College Advantage 529 Savings Plan
(invest only in Vanguard options)
Oklahoma  Oklahoma College Savings Plan – Direct Plan
Oregon  Oregon College Savings Plan
Pennsylvania  Pennsylvania 529 Investment Plan
South Carolina  Future Scholar 529 College Savings Plan – Direct Sold
Tennessee TN Stars College Savings 529 Program
Texas  Texas College Savings Plan (Index age-based only)
Vermont  Vermont Higher Education Investment Plan
West Virginia Smart 529 WV Direct College Savings Plan

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Clark Howard About the author:
Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. More about Clark
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