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How to select a 529 plan
https://www.savingforcollege.com/articles/how-to-select-a-529-plan-1019

Updated: 2017-08-31 Posted: 2017-01-23

by Martha Kortiak Mert

Great news. You've done your research and decided that a 529 plan is the right choice for your education savings needs. So now what?

With so many 529 plans to choose from, we know that getting started can be a little overwhelming, but it doesn't have to be. Here's how to find the best 529 plan in four easy steps.

Step 1 Choose the type of plan you want

Savings plans are the most common type of 529 plan. They work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select. Savings plans are either Direct Sold or Broker Sold.

As the name suggest, you can purchase a Direct Sold plan directly from the plan manager. You will have to rely on your own research to identify your best options, or you can hire a fee-based financial planner to help you. There are no sales charges with these plans.

Broker Sold plans, on the other hand, are sold through financial advisors. Using an advisor means you get the benefit of advice and expertise of an investment professional, but may mean you pay sales charges or incur other fees that are used to compensate the adviser.

Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. Only a handful of states offer prepaid plans. In addition, the Private College 529 Plan is a separate prepaid plan for private colleges, and is available to consumers nationally.

Step 2 See what your state offers

Over 30 states offer a state tax benefit for contributions to a 529 plan. Choose a state from the map below to see which plans your state offers, and what types of tax benefits or incentives are available for state residents.

Related How much is your state's tax deduction really worth?

Step 3 Research and compare

If you've completed Step 2 and feel satisfied with an option offered by your state, by all means, skip directly to Step 4. However, if you feel like you want to shop around and do a little more due diligence, read on.

When comparing 529 savings plans, you want to make sure you look at a few important measurements:

  • What types of fees does the plan charge? Is there an annual fee? An account opening fee? Does my home state waive these fees?
  • What are the total expenses of the plan? Total expenses are the percentage fee charged on assets by the plan every year. If the fee is 1.00%, you'll pay $1 on every $100 you invest. In some rare cases a state may waive a portion of this fee for in-state residents.
  • What investment options are available? Are you looking for an investment that changes automatically as your beneficiary ages, or do you want a wider investment selection and more control? Is an FDIC-insured product important to you, for example?
  • How responsive is the plan? If you call, does someone pick up right away, or do you have to hold for ten minutes? Customer service matters, especially with something as complex as a 529 plan.

Savingforcollege.com offers a numbers of tools to help you evaluate 529 plans. Our 5-Cap Ratings provide an overall rating for each 529 plan based on performance, fees, features, and reliability. Our quarterly performance rankings will show you the top-performing direct-sold plans based on 1-year, 3-year, 5-year and 10-year performance. Or, just go straight to our 529 Comparison Tool, which lets you sort and filter plans based on what's important to you (low fees, ratings, performance). Select up to three plans for a more detailed head-to-head comparison.

Step 4 Open your plan

Ready to get started? There are two ways to invest in a 529 plan:

1. Directly with the 529 plan manager. See a list of 529 plans.

2. Through a financial advisor. Find an advisor in our Pro Directory.

If you are the account owner, you'll be asked for your social security number, as well as a social security number for the beneficiary (i.e., the child for whom you're saving). Don't have a social security number for the beneficiary available? Don't let that keep you from getting started, you can name yourself as beneficiary for now, and change it at a later time.

If you are opening a Direct Sold savings plan, you'll be asked to choose an investment option. Most plans offer age-based investment portfolios that allow you to "set it and forget it." If you'd like to learn more about investment options, click here.

Most importantly, don't over-think it, and don't procrastinate. It's best to get started early. If you find that you're unhappy with your choice of plan in the future, you can roll it over to another plan. Remember, each day you wait to start saving you lose out on potential investment growth.

Consider additional ways to save

We promised four steps and we delivered. But now that you have your 529 plan, it's worth considering options that can help you to effortlessly save more. One way is to get your friends and family to help. Many 529 plans have gifting programs that make it easy for others to make contributions, and your child's loved ones may enjoy giving a meaningful gift. Check the plans you're considering about their gifting options.

Another way is to sign up for Upromise. It's a program that helps families boost their 529 or college savings plan or pay down student loans by earning cash back on qualified, everyday spending. It's free to join! Once you sign up, you can link directly to your 529 plan to boost your earnings just by doing things like shopping online, eating at restaurants, booking travel, and picking up groceries and drug store items.

Finally, you may want to consider a cash-back credit card. For example, Fidelity has one that allows you to deposit your rewards directly to a Fidelity account, including a Fidelity 529 college savings plan. See a full list of 529 plans that have an agreement with a rewards program here.

Great news. You've done your research and decided that a 529 plan is the right choice for your education savings needs. So now what?

With so many 529 plans to choose from, we know that getting started can be a little overwhelming, but it doesn't have to be. Here's how to find the best 529 plan in four easy steps.

Step 1 Choose the type of plan you want

Savings plans are the most common type of 529 plan. They work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select. Savings plans are either Direct Sold or Broker Sold.

As the name suggest, you can purchase a Direct Sold plan directly from the plan manager. You will have to rely on your own research to identify your best options, or you can hire a fee-based financial planner to help you. There are no sales charges with these plans.

Broker Sold plans, on the other hand, are sold through financial advisors. Using an advisor means you get the benefit of advice and expertise of an investment professional, but may mean you pay sales charges or incur other fees that are used to compensate the adviser.

Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. Only a handful of states offer prepaid plans. In addition, the Private College 529 Plan is a separate prepaid plan for private colleges, and is available to consumers nationally.

Step 2 See what your state offers

Over 30 states offer a state tax benefit for contributions to a 529 plan. Choose a state from the map below to see which plans your state offers, and what types of tax benefits or incentives are available for state residents.

Related How much is your state's tax deduction really worth?

Step 3 Research and compare

If you've completed Step 2 and feel satisfied with an option offered by your state, by all means, skip directly to Step 4. However, if you feel like you want to shop around and do a little more due diligence, read on.

When comparing 529 savings plans, you want to make sure you look at a few important measurements:

  • What types of fees does the plan charge? Is there an annual fee? An account opening fee? Does my home state waive these fees?
  • What are the total expenses of the plan? Total expenses are the percentage fee charged on assets by the plan every year. If the fee is 1.00%, you'll pay $1 on every $100 you invest. In some rare cases a state may waive a portion of this fee for in-state residents.
  • What investment options are available? Are you looking for an investment that changes automatically as your beneficiary ages, or do you want a wider investment selection and more control? Is an FDIC-insured product important to you, for example?
  • How responsive is the plan? If you call, does someone pick up right away, or do you have to hold for ten minutes? Customer service matters, especially with something as complex as a 529 plan.

Savingforcollege.com offers a numbers of tools to help you evaluate 529 plans. Our 5-Cap Ratings provide an overall rating for each 529 plan based on performance, fees, features, and reliability. Our quarterly performance rankings will show you the top-performing direct-sold plans based on 1-year, 3-year, 5-year and 10-year performance. Or, just go straight to our 529 Comparison Tool, which lets you sort and filter plans based on what's important to you (low fees, ratings, performance). Select up to three plans for a more detailed head-to-head comparison.

Step 4 Open your plan

Ready to get started? There are two ways to invest in a 529 plan:

1. Directly with the 529 plan manager. See a list of 529 plans.

2. Through a financial advisor. Find an advisor in our Pro Directory.

If you are the account owner, you'll be asked for your social security number, as well as a social security number for the beneficiary (i.e., the child for whom you're saving). Don't have a social security number for the beneficiary available? Don't let that keep you from getting started, you can name yourself as beneficiary for now, and change it at a later time.

If you are opening a Direct Sold savings plan, you'll be asked to choose an investment option. Most plans offer age-based investment portfolios that allow you to "set it and forget it." If you'd like to learn more about investment options, click here.

Most importantly, don't over-think it, and don't procrastinate. It's best to get started early. If you find that you're unhappy with your choice of plan in the future, you can roll it over to another plan. Remember, each day you wait to start saving you lose out on potential investment growth.

Consider additional ways to save

We promised four steps and we delivered. But now that you have your 529 plan, it's worth considering options that can help you to effortlessly save more. One way is to get your friends and family to help. Many 529 plans have gifting programs that make it easy for others to make contributions, and your child's loved ones may enjoy giving a meaningful gift. Check the plans you're considering about their gifting options.

Another way is to sign up for Upromise. It's a program that helps families boost their 529 or college savings plan or pay down student loans by earning cash back on qualified, everyday spending. It's free to join! Once you sign up, you can link directly to your 529 plan to boost your earnings just by doing things like shopping online, eating at restaurants, booking travel, and picking up groceries and drug store items.

Finally, you may want to consider a cash-back credit card. For example, Fidelity has one that allows you to deposit your rewards directly to a Fidelity account, including a Fidelity 529 college savings plan. See a full list of 529 plans that have an agreement with a rewards program here.

 

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