The Best 529 Plans
4 weeks of research
55 plans compared
3 best investments
The Best 529 Plans
A state-sponsored 529 savings plan is an investment portfolio ear-marked for college expenses. Money grows tax-free in a 529 plan and comes out tax-free, too — so long as it is put toward qualifying educational expenses. Every state has at least one 529 plan, and many have two or more. We spent four weeks researching 529 plans, landing on the best by grading them on four core metrics: past performance, management expenses, investing options, and data accessibility.
How We Chose the Best 529 Plans
Saving plans available to residents of any state
While every 529 plan is state-sponsored, not every 529 plan has the same requirements for where you live and where the beneficiary attends school. To ensure we were looking at options that would work for the majority, we eliminated plans with residency requirements or prepaid plans.
With a prepaid plan, you pay tuition to the state your child will attend college ahead of time. By only considering savings plans, we ensured our recommendations are practicable for everyone, regardless of where you live now or where they’ll study in the future.
Note: In some cases, going with your state’s 529 plan is a great option. Look for an upcoming review on when this might be the case — it boils down to state income tax credit and lower management costs.
Direct-sold not advisor-sold
There are two ways to enroll in a 529 plan. You can purchase a plan through an advisor, who handles the investing for you, or you can invest directly. While going through an advisor lets you hand the reins to someone else — someone whose job it is to outwit the market — advisor-sold plans tend to be a lot more expensive. What’s more, their expert help is far from guaranteed to make up for that extra cost. We considered only direct-sold plans.
As a preliminary point of comparison between 529 plans, we looked at how easy it was to find key data on each plan’s website. Lack of transparency here makes comparison unnecessarily difficult, while also suggesting the plan may fall short of being user-friendly down the road.
We cut 529 plans that didn’t show:
- past performance data of each of their investment options over the last five years
- expense data for $10k invested over the course of 10 years
- all investment options available
- minimum (monthly) and maximum (total) contribution amounts
Past performance doesn’t guarantee future results. The market is given to squalls and your investment is just another boat on the sea. Still, looking at average returns over the years is the best way to estimate how well your investment might perform.
Plans offer tons of different investment options. For the sake of “apples to apples,” we averaged the annual returns of four common portfolios over the past five years.
- Static — blend with mostly stocks
- Static — balance of stocks and bonds
- Static— blend with mostly bonds
- Age-based — shifting mix of stocks and bonds
The first three plan categories are static portfolios — your investment allocations remain the same until you adjust them (you can make adjustments twice per calendar year and if you change the beneficiary). Age-based tracks adjust automatically, allocating funds away from high-reward/high-risk investments and toward low-reward/low-risk investments as the beneficiary nears college age. Most 529 plans offer both static and age-based portfolios.
While past performance is the most important metric we gauged, the cost it takes to maintain your investment plays a big role, too. Thanks to compound interest, one percentage point more or less can add up to a huge chunk of change.
To determine each plan’s ranking for this metric, we looked at how much each investment option would cost if you invested $10,000 over 10 years. We averaged together the following prices for static plans:
- The plan’s 100% stock investment option (most expensive)
- The plan’s majority stock investment option (second most expensive)
- The plan’s balanced portfolio investment option (middle ground)
- The plan’s majority bonds investment option (second cheapest)
- The plan’s 100% bonds investment option (cheapest)
For age-based plans, we averaged together the decreasing management costs as the plan ages into a conservative, lightly-managed portfolio assuming the account was opened before the student’s first birthday.
The sheer number of investment options you have under a given plan matters, as well as the selection you’re offered in popular categories like static and age-based. We also wanted to see generous minimums and maximums for contributions, so you’ll never have to worry about having too little for a contribution or reaching a maximum that isn’t equal to actual education costs. We asked the following questions to help rank plans based on investment versatility:
- Does the plan offer all four most common investment options?
- How many investment options total?
- What’s the minimum you can contribute per month?
- What’s the maximum contribution amount?
We weighted the outcomes of our core metrics to reflect their importance in determining the overall quality of the plan. Our top three picks shared the highest score.
The 3 Best 529 Plans
New York’s 529 College Savings Program
Why we chose it
Standardized, rock-bottom fees
The same fee across plan types means you aren’t cornered into enrolling for a plan based on expenses alone. With New York’s 529 College Savings Program, you can expect an exceptionally low 0.13% expense ratio (ER) no matter the portfolio you invest in — high-risk, low-risk, static, age-based. Even for the most minimally-managed, low-risk portfolios, a 0.13% ER would be remarkable. For stock-heavy plans, it’s astounding. Making investments with expenses top of mind is a smart money move: Investing with New York’s 529 minimizes expenses so you can maximize returns.
Plethora of investment options
Whether you’re a conservative investor on the hunt for a water-tight, bond-focused portfolio, a risk-tolerant investor looking for big gains, or a hands-off investor interested in an automatically adjusting, age-based system, you’ll have options under New York’s 529 plan. What’s more, all plans turned up encouraging numbers in their five-year data. Conservative plans have gains in the 1-5% range, with more active portfolios gaining as much as 6.7%.
High maximum investment
New York’s 529 College Savings Plan shows small numbers and big numbers exactly where you want to see them. The no-minimum investment means that you can pump up the total with any amount at any time, and the sky-scraping $520,000 maximum investment means that you have a high ceiling to accumulate future education funds.
Points to consider
State income tax deduction
New Yorkers can deduct up to $5,000 per beneficiary per year, or $10,000 if married and filing jointly, from their taxable income to invest in a 529 plan. (If you’re investing as a gift, you can contribute $15,000 or $30,000 jointly.) A serious boon for those who both live in the empire state and choose to save for higher education there. But investors from other states can’t reap this reward and should weigh potential tax savings in their home state against the returns and low expense of New York’s plan.
Rollovers subject to tax
If you choose to move your account from New York’s 529 plan to a 529 plan in another state, the money will be subject to New York’s tax on earnings. It’s doubtful that you will need to transfer a 529 account in this way, since there are so many options internally if you want a different portfolio. Still, it’s good to be aware that your money could get a hefty bite taken out of it if you want to roll it over to a totally new account.
Ohio’s 529 CollegeAdvantage
Why we chose it
Portfolios for every investor
Some people want to take an active role in managing their 529 investment. Others want to make a decision once — to open a certain account — and then let the money ride. Ohio’s 529 CollegeAdvantage has a breadth of offerings wide enough to accommodate both investment styles. Choose from ready-made plans that allocate based on the age of your benefactor, their college-entrance year, or your risk tolerance. You can also design your own plan with a range of equity options — stocks, bonds, and cash instruments.
Low expense ratios
Expense ratios measure how much of a fund’s assets are used for operating expenses. ERs between 0.5-1.0% are common; anything below is golden. For both static and age-based portfolios, expense ratios (ERs) for Ohio’s 529 CollegeAdvantage stay below 0.22%. Static ERs range from 0.19-0.22%; age-based from 0.20-0.22%.
High-performing conservative investments
Ohio’s 529 has performed well across the board, with returns breaking 5% on a number of higher-risks portfolios. But historically the portfolios that have performed exceptionally well are the bond-heavy options. Seeing close to 1% isn’t uncommon for these low-risk accounts, but five-year data for plans made up of 50-100% bonds shows returns of 2-4%.
Points to consider
State income tax deduction
If you are an Ohioan, you can deduct up to $4,000 per beneficiary from your income tax. Not an enormous sum compared to the in-state tax benefits of New York and Pennsylvania, but still a pretty penny to be able to invest, watch grow, and withdraw tax-free. But for residents of all other states, this income tax perk won’t be available.
Pennsylvania 529 College and Career Savings Program
Guaranteed Savings Plan
Minimum contribution: $25
Total maximum contribution: $511,758.00
Why we chose it
Secure savings option
Pennsylvania 529 sponsors two plans: an investment plan (IP) and a guaranteed savings plan (GSP). If you are turned off by market fluctuations, opt for the security of the GSP. The Pennsylvania Treasury invests for you, and the fund takes responsibility for performance. The end-result: No matter how your money has fared, the credits and semesters you “bought” with your contributions will stand. This is because your investment dollars are organized as evergreen credits at five different tuition levels (community college, university, etc.).
Pennsylvania 529 offers 16 investment plans that span the full gamut of age-based, blended, and 100% stock and bond options. All of the above have enjoyed solid performance over the past five years. Aggressive portfolios have seen returns in the 5% range, while more conservative portfolios have seen 2-5%.
Low management expenses
All of Pennsylvania’s 529 plans levy dependably low management fees — every plan we compared comes with a moderate 0.24-0.25% expense ratio (ER). Rule of thumb when it comes to ERs: The more aggressive the holdings, the more actively they are managed, the higher the fees. An ER between 0.5% and 1% is typical for actively managed funds, while 0.2% is average for passive management. With Pennsylvania 529, you are paying the lowest end of fees no matter the investment portfolio. Plus, there’s no annual fee (normally $10) if you opt out of paper delivery.
Points to consider
State income tax deduction
While income tax deductions are available, they’re exclusively for Pennsylvanians. If you’re out-of-state you miss out. But locals can deduct up to $15,000 per beneficiary per year (or $30,000 if married and filing jointly) from your taxable income if you’re investing that amount in your 529 plan. That’s higher than most. And thanks to Pennsylvania 529’s high upper limit ($511,758), you could make that max yearly investment for longer than you are likely to hold the plan.
Guide to 529 Plans
What to do before and after you pick your 529 plan
Learn the Oxygen Mask Rule
While saving for your children’s college is definitely important, many parents mistakenly identify it as the most important long-term financial goal. But recall the safety briefings of flight attendants: always secure your own oxygen mask before you assist anyone else. The idea is that if you don’t take of yourself, you won’t be able to help your children either. The application to finances is pretty self-explanatory: It’s no good over-contributing to a 529 plan if you’ll have to make taxed and penalized withdrawals in an emergency.
Keep in mind that you don’t necessarily have to pay for 100% of your student’s education. Determine what your target percentage is, and don’t overextend yourself. While students can borrow to pay for college, you can’t borrow to pay for retirement. Paying off debt, building an emergency fund, saving for later in life — these are all financial considerations to prioritize before enrolling in a 529 plan.
Start saving early
It quite literally pays to start early – saving a smaller amount earlier can be more effective than saving a larger amount later. The table below illustrates the benefit of starting to save as early as possible. Compare the first and third investment scenarios. The individual who contributed $100 per month over 15 years put in nearly $2,000 more than the individual putting in $75 per month over 18 years, yet wound up with $600 less.
Choose your portfolio
Once you’ve enrolled, you choose how you want your money invested. The two key considerations are your risk tolerance and the age of your child, and these concerns are intertwined. The idea is that when your student is young, market fluctuations aren’t a problem – maximum growth is the goal at that point. When your student gets close to college, you want to maintain the funds you have so that a sudden market downturn doesn’t derail college plans.
Ten or more years away from college? With that time horizon, you may be willing to ride market fluctuations for a chance at greater growth. Look to high-risk, stock-heavy plans. If your student is just a few years away from college, however, you may just look at 529 plans as a tax-advantaged way to save money. Turn to low-risk options made up primarily of bonds. Most plans also have age-based options in which your investment automatically shifts from higher to lower risk as your student gets closer to college.
You can contribute to your plan in multiple ways. Available options include automatic payroll deductions (if your employer allows it) and recurring drafts from your bank account. You can also make single payments online, usually monthly or quarterly.
Withdraw and track
When it comes time to withdraw 529 funds, know that the total amount withdrawn each year cannot exceed your child's adjusted qualified higher education expenses, minus other tax benefits. The earnings portion of money withdrawn for non-qualified expenses are subject to federal income taxes, as well as a 10% penalty. If you withdraw more than you can appropriately spent, funds can be re-contributed within 60 days.
Make sure you know what’s considered a “qualified education expense” and what isn’t. Perhaps the most important action is to separate qualified payment receipts (textbooks) from other purchases (video games). If you are making purchases that fall in the gray area between curricular and extra curricular, check with the college’s department of financial aid. Room and board, for example, is covered, but only for as much as the college estimates room and board should cost. To avoid penalties, ask before you spend.
529 Plans FAQ
The Best 529 Plans: Summed Up
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