“So, you've started my 529 college savings plan, right?” (Photo Credit: CC BY-ND/Janielle Viggiano/Dr. Boyce Family Finance)
The earlier you begin to save for a child’s college education, the better. A 529 college savings plan enables you to watch money grow tax-free until it’s time for college. Particularly if a child doesn’t qualify for scholarships, a 529 plan can be quite useful.
Recession creates 529 bidding war
Many 529 plan administrators noticed that the recession had kept cash-strapped parents from contributing to their compound savings accounts. Hence, fees began to drop, which resulted in a 529 savings plan price war in which the consumer is the real winner. Money goes into conservative-mix, age-based portfolios – which function much like mutual funds – and the payoff comes when the child reaches college age. These 529 plans must have state sponsorship, and each state typically has more than one sponsored plan – some have as many as five.
However, cream tends to rise to the top. Here are some of the best 529 college savings plans available, according to consumer advocate Clark Howard:
Utah: Utah Educational Savings Plan Trust
Iowa: College Savings Iowa
New York: New York’s College Savings Program – Direct Sold
The best of the rest
Alaska: University of Alaska College Savings Plan
Arizona: Fidelity Arizona College Savings Plan
Arkansas: Gift College Investing Plan
California: The Scholarshare College Savings Plan
Colorado: Direct Portfolio College Savings Plan
Connecticut: Connecticut Higher Education Trust
Delaware: Delaware College Investment Plan
Georgia: Path2College 529 Plan
Idaho: Idaho College Savings Program (iDeal)
Illinois: Bright Start College Savings Program Direct Sold Plan
Indiana: College Choice 529 Direct Savings Plan
Kentucky: Kentucky Education Savings Plan Trust
Louisiana: Start Saving Program
Maine: Next Gen College Investing Plan – Client Direct Series
Maryland: College Savings Plans of Maryland – College Investment Plan
Massachusetts: U.Fund College Investing Plan
Michigan: Michigan Education Savings Program
Minnesota: Minnesota College Savings Plan
Mississippi: Mississippi Affordable College Savings Program
Missouri: MOST (Vanguard)
Nevada: The Vanguard 529 Savings Plan
New Hampshire: Unique College Investing Plan
New Mexico: The Education Plan’s College Savings Program – Direct Sold
North Carolina: North Carolina National College Savings Program (Vanguard)
North Dakota: College SAVE 529 Plan
Ohio: Ohio College Advantage 529 Savings Plan (Vanguard)
Oklahoma: Oklahoma College Savings Plan
Oregon: Oregon College Savings Plan (Vanguard)
Pennsylvania: Pennsylvania 529 Investment Plan
South Carolina: Future Scholar 529 College Savings Plan – Direct Sold
South Dakota: College Access 529 – Direct Sold
Texas: Texas College Savings Plan
Vermont: Vermont Higher Education Investment Plan
Virginia: Virginia Education Savings Trust
Choosing the best 529 plan for your child
Consider age-based portfolios, which start strong but gradually become more conservative as the goal comes into view (the child’s age approaches 18). Another option is a Coverdell Education Savings Account, where money can be saved at a tax advantage either for college or private school grades 1 through 12. The annual limit is $2,000 and you have to manage the investment package yourself. Coverdells do not require state sponsorship. You can sign up for a Coverdell at most any bank or broker. Independent 529 plans are also available, where tuition at participating colleges are paid at current prices, to guard against the inevitable future price hikes.
Great Video – Very informative and explains the key features of 529 clearly. It should be said that 529 isn't the only college option. The College First plan offers tax-deferred growth, tax-free access to cash, but offers more flexible access to cash (no penalties). However, the college first plan doesn't provide the state tax deductions mentioned. In states such as California, Florida, New Jersey, Texas the 529 plan doesn't offer these anyway.
With regard to college fees inflation, only a few schools are slowing the growth of their fees. Fees at top schools in particular have generally been rising by 4%-6% year on year, and will continue to do so for some time to come. It should be noted that financial assistance has also been increasing at these schools, so the true out-of-pocket expense to parents/students isn't as much as the sticker price of say $45,000 per year at an Ivy League school.