California residents looking for the best 529 plan have plenty of options. While ScholarShare 529 is the state’s official college savings plan, California does not offer a state tax deduction for 529 contributions. This means residents can invest in any state’s 529 plan without losing a tax benefit. Popular alternatives include the Vanguard 529 Plan, my529, and the T. Rowe Price College Savings Plan.
However, ScholarShare 529 still has advantages, including low fees and good historical performance. Here’s what to consider when selecting the best 529 plan for California residents.
529 tax benefits
Investments in a ScholarShare 529 plan account grow on a tax-deferred basis, and funds can be withdrawn tax-free to pay for qualified education expenses, such as:
- College tuition and fees
- Books and supplies
- Room and board if the student is enrolled on at least a half-time basis
However, unlike some states, California does not allow tax-free withdrawals for K-12 tuition. Families using 529 funds for K-12 tuition may owe state taxes and penalties on those withdrawals.
Since California does not offer a state income tax deduction or credit for 529 plan contributions, Californians receive no additional tax advantage for choosing ScholarShare over another state’s 529 plan. However, all 529 plans, including ScholarShare, offer federal tax benefits, such as tax-deferred growth and tax-free withdrawals for qualified education expenses.
Low fees
The more a family pays in 529 plan fees, the less they can save for college. ScholarShare 529’s fees are among the lowest compared to other state plans. According to Savingforcollege.com, its lowest-cost portfolio ranks 4th overall among 529 plans.
According to Savingforcollege.com’s 529 fee study, last released in September 2024, the 10-year total asset-based fees on a $10,000 investment in ScholarShare would be between $51 and $531.
There is no enrollment fee, application fee, or account management fee. Program management fees are:
- 0.05% for Active, ESG, and Social Choice Portfolios (including 0.04% state fee)
- 0.01% for Passive and Index Portfolios (no state fee)
- There is no fee for the Principal Plus Interest Portfolio.
A variety of investment options
ScholarShare 529 offers a variety of investment options from TIAA-CREF, DFA, Vanguard, PIMCO, T. Rowe Price, and others, including:
- 3 enrollment year-based options that automatically become less risky as the beneficiary gets closer to college
- 8 static investment multi-fund portfolios
- 5 static investment individual fund portfolios
- A principal-protection portfolio
529 plan account owners must select an investment portfolio when they open an account, and they can make investment changes twice per year.
Investment performance
ScholarShare’s 529 plan ranks in the middle of the pack for performance. According to Saving For College’s quarterly performance rankings, the 529 plan ranked 20th for the 3-year period ending December 31, 2024, with an average return of 2.44%. For one-year performance, it ranked 28th with an average return of 9.76%.
However, remember that this data represents historical performance, which is not necessarily indicative of future results.
Which 529 plan should California residents ultimately choose?
Since California does not offer a state tax deduction for 529 contributions, residents have the flexibility to choose from any state’s plan. ScholarShare 529 is a strong option due to its low fees and investment variety but plans like Vanguard 529 and my529 may also be worth considering for their unique advantages.
You can also view our top picks for the best 529 plans here.
