How do you know which 529 Plan is right for you and your child?
529 Plans, a way to save for college, continue to increase in the popularity.
How do these state-based plans work?
You set up a plan for a single beneficiary. For most, this will be your child. The plans allow for after-tax contributions, and these contributions are placed into an investment fund (So, yes, there is risk involved). Some states let you select from a few funds, others don’t. All growth within the plan and withdrawals are tax-free.
Each state has its own plan. And you can choose from any of them. So if you live in North Carolina like me, you can select the North Carolina plan or you can select the plans of New York, Maryland, Alaska, or any other state’s plan.
With such a variety of plans available, how do you choose which one is right for you?
Here are three simple tips to consider:
- Ratings. How does the plan rank against other plans? Morningstar and savingforcollege.com are great resources when considering the comparative ranking of 529 Plans.
- Returns. Historically, how have these plans performed? For these returns, be sure to look beyond just the most recent year. Consider five and ten year performances.
- Rewards. Some states offer tax benefits for their residents who invest in their state’s 529 Plan. If you are not a resident of that state, you are not able to receive those benefits. Determine whether or not you can receive any additional benefits for investing in your home state’s plan. And determine whether or not these benefits are significant enough for you to not invest in another state’s better performing plan.
Saving for college is a great thing to do for your children. But there are a lot of plans out there. However, don’t let this stop you. Simplify your decision-making by considering their ratings, returns, and rewards.