7 key questions for comparing 529 plans

http://www.savingforcollege.com/articles/7-key-questions-for-comparing-plans

When selecting a 529 plan, most investors will base their decision on the factors important to their investment style. The first questions an investor asks are often ones like these:

• Do I have to use my state's plan?
• Can I invest in a state's plan even though my child will go to college somewhere else?
• What expenses are considered 'eligible' by this plan?
• How reliable is the plan manager?
• What sorts of costs do I have to pay?
• Will I be charged if I want to make changes to my plan?
• Does the plan give me a choice of how aggressive I want to be in my investments?

Do I have to use my state's plan?
You are not limited to investing in plans provided by your state. If you live in Nevada, you can invest in a plan from Rhode Island, and vice versa. Florida residents can invest in New Mexico plans, New York residents in California plans...so don't feel like you have to limit your research to the state you reside in. Some states do provide extra savings for residents – like reduced charges, or state tax-deductible contributions – so your home state is usually a good place to start your comparison!

Find your state's 529 plan.

Does it matter if my child goes to a college in a different state?
Who knows where your six year old will want to go to college? Typically, as long as you use the funds for qualified expenses at an "eligible" school the plan doesn't care where your student enrolls. You could live in California, have invested for 10 years in a New York plan and then send your student off to college in Colorado. If you do know the college, you might research prepaid 529s. These plans allow you to keep up with tuition inflation without the risks of the stock market.

Find out if an institution is eligible for 529 purposes.

What sorts of expenses are considered eligible?
Eligible expenses are defined under federal law, and not by the plan itself. When comparing plans, this is a question you generally do NOT need to ask. However, prepaid 529s are more restrictive in what they promise to pay for, and you may wish to use a 529 savings plan even when you have tuition covered with a prepaid 529.

Estimate college costs here.

How reliable is the plan manager?
The 529 market is expanding, with states launching new plans or changing existing plans. You will undoubtedly have heard of some of the firms hired by the states to manage the investments in 529 plans, and others you may never have heard of. You can turn to the 2013 Plan Performance Rankings to help you. Here, we have done a comparison across all 529 plans to rank their past performance for you. Remember, however, that past performance is not a guaranty of future returns and that most 529 investment options involve risk of loss.

What costs will I have to pay?
This is an area of competitive difference between plans, but it can be difficult to do a comparison "apples to apples." To help you with this, we have compiled a Fee Ranking Study that allows you to rank plans based on their fees and expenses.

It may simplify your choices by dividing plans into two categories. Direct Sold Plans – those that are sold directly by the plan (or the state) to the investor, and Broker Sold Plans – those sold to the investor by a financial adviser or broker. It is a general rule of thumb that many direct sold plans avoid a sales or marketing charge, making them a lower-cost option.

Will I be charged to make changes to my plan?
Ask each plan how flexible it will be if you need to make changes to a beneficiary, switch your investment strategy (from high risk to low risk or vice versa) or even rollover to another plan. Some plans may charge for changes, or may have windows when these changes can be made.

Compare plan features here.

Can I choose how aggressive my plan investments will be?
It is important to choose a plan that reflects your own personal investment style. There are generally two types of investment strategies in 529 plans – age-based and static. Age-based options will invest early on in more aggressive vehicles, aiming to maximize your return. Closer to college time, your plan switches to lower risk investments, protecting the capital you have built up. Static options maintain a consistent investment profile throughout the term. You should evaluate the plan's strategy and how it matches your investment objectives.

Check out or Compare 529 Plans Tool here.