Does this 529 plan rule leave you scratching your head?

http://www.savingforcollege.com/articles/does-this-529-plan-rule-leave-you-scratching-your-head

As part of the College Savings Month celebration in September, Savingforcollege.com conducted a survey to gain a better understanding of the reasons why families select certain 529 plans.

It seems most people are aware that state-run 529 plans offer tax benefits, since 51.9 percent of those who invest in their own state’s plan said they do so because of the state tax breaks. However, other reasons why families chose to use plans administered by their home state included because they thought they had to invest in their own state’s plan (6.2%), it was the only plan they knew of (16.1%) and because they expect their child to attend a school in their home state (12.4%).

These results tell us that families are still confused about the fact that 529 plans are operated by the states. Unfortunately, in this case what you don’t know can hurt you. There are hundreds of 529 plans available, and it’s important to explore all of your options to ensure you invest in the best plan to reach your family’s goals. By limiting your search to plans in your home state, you might be missing out on potentially greater investment returns or lower fees elsewhere.

If you’re one of the many folks who is skittish about looking outside your home state for a college savings plan, here are a few things to keep in mind:

You Can Invest in Almost Any 529 College Savings Plan No Matter Where You Live

If you live in Ohio, you can invest in California’s ScholarShare Program. If you live in California, you can save for college with Virginia529 inVEST. It’s up to you to do your homework to find out about the investment options and fees and expenses associated with each plan. We generally recommend starting with your home state’s plan to see if they offer any tax breaks for residents. Many states offer a tax deduction or credit on contributions, which can help boost savings if they are reinvested.

So your state offers a pretty nice tax benefit – time to sign up, right? Not so fast. You’ll still need to compare your out-of-state options. High fees or subpar investment performance could easily wipe out the value of any tax break. Savingforcollege.com offers an excellent State Tax Calculator that will show you the dollar value of your tax benefit, and the investment return an out-of-state plan would have to achieve in order to come out ahead.

Your 529 Plan and Your Child’s College Choice Do Not Have to Be in the Same State

Except for a few prepaid tuition plans, savings in a 529 plan can be spent toward any eligible post-secondary institution. Despite popular belief, the beneficiary of a 529 account is not required to enroll in the state’s public school, or any school in that state for that matter. In fact, there are a number of foreign schools that are 529 plan eligible. Your child has options in London, Paris, Beirut, the Caribbean – you name it! And if you prefer your children stay stateside, you have the option of almost any public or private university, including vocational and technical schools.

You Don’t Need Special Permission to Enroll in An Out-of-State Plan

If you’ve done the research and find that an out-of state plan turns out to be your best option, you can either invest directly through the plan or enlist the help of a financial advisor. Direct-sold sold plans are usually a lower cost option because you will avoid paying sales charges. But if you’re new to investing and you aren’t comfortable selecting your own plan, the additional cost of the professional advice might be worth it. Simply visit the plan details page on Savingforcollege.com and click “Enroll Now” for direct-sold plans, or “Find a 529 Pro Now” for advisor-sold plans.

The Investments in Your 529 Plan Are Professionally Managed

It’s true that most 529 plans are state-operated, but the administrators typically turn to the experts when it comes to managing the underlying investments. For example, some of the largest 529 plans offer investment options from reputable asset managers such as American Funds, Fidelity, Vanguard and BlackRock. Keep in mind that like any investment, there are risks associated with 529 plans and the degree of risk will vary based on the investment options you select. Some states offer FDIC insured options, which are backed by the full faith and credit of the U.S. government but offer less potential for growth.