Saturday, March 8, 2008

How Do You Choose the Best 529 College Savings Plan?

A few weeks ago, a friend asked me to recommend a good 529 plan. I have 529 plans with New York. I originally started the New York plan because I was a resident of New York when I opened the plan and my contributions were deductible for state income tax. Now that I live in Texas, I still believe the New York plan is a good choice.

Selecting a 529 plan can be very confusing . In my opinion, there are to many plans to choose from. I counted over 100 different plans. To add to the confusion, almost every financial publication recommends a different plan so I wanted to do my own research and recommend a plan based on the criteria that is important to his situation. A great source for 529 plan research is

Below are the steps we took to determine what plan was best for him:
- We only considered the 529 savings plans and not the 529 prepaid tuition plans.
- We only considered plans that invested directly with the state so we could bypass the high fees and commissions charged by brokers. By choosing a direct-sold 529 plan you can invest without paying this sales fee.
- My friend lives in Minnesota so we reviewed the Minnesota state plan first to see if he qualified for special benefits. No benefits were offered to in-state residents so we researched other plans.
- We only considered plans with total annual fees less than 1%.
- We also reviewed the investment options. I’m a big fan of Vanguard so we took a closer look at the plans that offered Vanguard funds with the lowest fees.

We narrowed our search down to 3 plans all offering very low fees and Vanguard funds:

New York

All three of these plans are a great choice. We felt the Iowa plan had the overall best Vanguard investment options with low total costs. Even though Utah has the lowest total cost, we felt the cost structure was a little confusing. Both Iowa and New York charge flat management fees. The Utah fee structure is based off quarterly account maintenance fees, program management fees, and additional expenses from underlying investments. That’s just too confusing. So my friend chose Iowa. For me, I’m sticking with New York since the differences just aren’t enough to justify transferring my plans to Iowa.


GBlogger said...

We use the New York 529 plan as well. I also particularly like the ability to access, make contributions, and manage the accounts online. It also links seamlessly with UPromise.

T Struck said...

I also like the ease of managing my New York 529 plans online. I'm not sure how New York's website compares to other states so I didn't mention this as an advantage. The ability to seemlessly link to UPromise is an advantage of the Iowa 529 plan as well. This feature wasn't that important to my friend so it was not part of our decision criteria but it may be a great advantage for those that use UPromise.

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