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Last updated on Apr 09, 2020

The Best 529 Plans

Save for college with plans that deliver high performance with big tax benefits ​
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How We Reviewed The Best 529 Plans

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With the cost of college tuition continuously on the rise, turning to 529 plans to save for children’s education is increasingly popular. Named for Section 529 of the IRS tax code, this unique U.S. investment carries special tax advantages and can include education benefits. As of 2017’s Tax Cuts and Jobs Act, it now includes different levels and types of schools, like private and religious educational institutions. 

There are both prepaid tuition and educational savings plans to utilize. While investors can choose to invest in most plans from any state, the best advantages often come from your home state – particularly where taxes are concerned. 

Prepaid plans use credits purchased using today’s rates, which can later be redeemed for credits in the future.

Savings plans generally use mutual funds or another type of investment to generate growth. These are dependent on market performance for growth using a specific selection of plans. Only states can administer savings plans, making them that much more exclusive.

Finding the best 529 plan can be difficult when your choices can vary by state. Worse, terms can widely vary, so it’s important to know what to look for before selecting the right 529 plan for you. 

These are our picks for the best 529 plans.

The Best 529 Plans Compared 

Avg High-risk returns (100% stocks)
5-YR Performance
Total Investment Options
Static and age-based plans
Bright Start 529 – Illinois
1.32%-11.67%
  • Age-based portfolios: 6
  • Target portfolios: 6
  • Individual funds: 16
  • Age-based
    Invest529 – Virginia
    1.91%-11.09%
  • Age-based: 8
  • Static: 15
  • Both
    my529 – Utah
    1.13%-11.50%
  • Age-based: 4
  • Static: 7
  • Customized: 2
  • Both
    ScholarShare College Savings – California
    1.32%-11.59%
  • Enrollment year: 2
  • Static: 17
  • Static

    Our Top Picks for the 529 Plans

    The 4 529 Plans Banks Explained

    Bright Start College Plans (IL) – Best for Flexibility

    Best For Flexibility
    Bright Start 529 – Illinois

    Bright Start 529 – Illinois

    Pros

    • No annual fees
    • Low management fees
    • Open enrollment

    Cons

    • Not insured
    • Minimum contribution

    Bright Start offers phenomenal flexibility and customization for your 529 plan with a number of different choices for you. There are fantastic options to include both age-based and static plans. There is also an available savings account that is FDIC-insured for the more wary investor. The plan is not limited to just Illinois residents, but accounts are limited to $350,000.

    You can save money with low administrative charges and no annual maintenance fees. To begin, there is a $25 minimum initial contribution. Additionally, Illinois taxpayers can receive up to $10,000 for single filers and $20,000 for married filers.

    These plans operate on open enrollment, so you don’t have to wait months before you can sign up. There is a minimum contribution of $25, as well as enrollment fee and quarterly maintenance fees. Also, Bright Start is not insured or bank guaranteed, which means your contributions are not protected. 

    Invest529 (VA) – Best for Fewer Fees

    Best For Fewer Fees
    Invest529 – Virginia

    Invest529 – Virginia

    Pros

    • Low costs
    • Numerous portfolio options
    • Tax deductions for VA residents

    Cons

    • Requires minimum contribution
    • Penalties for non-qualified withdrawals

    Invest529 is managed by the largest 529 plan in the U.S., Virginia529. The plan is open to all U.S. residents, with 2.6 million accounts. Invest529 is responsible for over $66 billion in assets with reasonable plans that don’t cut into savings with extra fees. There are also no online application fees and no annual maintenance fees.

    These plans can be used not only for tuition but also for room and board, books and certain equipment. Tax deductions are lower than other plans, with both single and joint filers receiving $4,000 each year for every beneficiary. Plans are valid for up to 30 years from your projected high school graduation date or within 30 years of the account opening if graduation has already occurred.

    There is federal tax-free growth with no penalties for qualified higher education-related expenses. However, non-qualified withdrawals may be subject to both IRS penalties and federal income tax.

    my529 (UT) – Best for New Accounts

    Best For New Accounts
    my529 – Utah

    my529 – Utah

    Pros

    • Competitive fees
    • No minimum deposit required
    • Higher maximum contributions

    Cons

    • Annual fee
    • Not all plans FDIC-insured

    Utah’s my529 plan is open to all U.S. residents, although Utah residents receive extra incentives on their state taxes. There is open enrollment with very few restrictions and the plan does not mandate any specific age, income, or residency. Beneficiaries and account owners do not need to be related, which creates flexible terms that appeal to a wide number of Americans.

    There are no enrollment fees, and the plan does not require a minimum balance or contribution. Like the Invest529 plan, qualified withdrawals can claim up to 5% in tax credits, but non-qualified withdrawals are still subject to the IRS penalty. 

    The selection of plans alone makes the my529 plan a versatile and easily manageable 529 plan for many investors.

    Accounts carry a maximum contribution of $500,000, which is much more than similar plans. However, be prepared to shell out for the asset-based fee that comes yearly, as well as administrative fees.

    ScholarShare College Savings (CA) – Best for Tax Benefits

    Best For Tax Benefits
    ScholarShare College Savings – California

    ScholarShare College Savings – California

    Pros

    • High maximum contributions
    • No fees
    • Estate tax benefits

    Cons

    • No tax deductions
    • State penalties for non-qualified withdrawals

    The ScholarShare College Savings Plan has no tax deductions for both single and joint filers, but there are tax-deferred earnings and dollar-for-dollar matching up to $200 on new accounts in 2020.

    While there are no minimum contributions, the maximum contribution is higher than many other plans with a total of $529,000. Fees are rare and there are also no enrollment, application, or maintenance fees. Management fees are minimal, with none assessed on the Principal Plus Interest Portfolio. 

    In addition to low fees, ScholarShare College Savings includes no federal gift tax on up to $15,000 in contributions for single filers and up to $30,000 for married filers. California does not offer any tax deductions. Additionally, it imposes an extra 2.5% penalty on non-qualified withdrawals in addition to the standard 10% IRS penalty. 

    What Is a 529 Plan?

    A 529 Plan uses tax-advantaged savings to encourage users to save for future education costs. When selecting a 529 plan, there are a few different plans that you can choose from. Washington, D.C., and all fifty states sponsor at least one 529 plan. These states may also offer additional tax deductions or credits that you can use. 

     Depending on where you live and which plan you choose, your options may include:

    • Age-based portfolios: These plans use more aggressive methods first but generally become more conservative as the beneficiary ages.
    • Target portfolios: These portfolios use a mixture of asset classes, allowing you more flexibility in your investment choices.
    • Individual portfolios: These portfolios allow investors to customize their portfolio to their own comfort level for risk-reward.

    All of our top five plans offer the option to purchase directly from the provider, rather than having to utilize and pay for the services of a broker. 

    Prepaid Tuition Program (Pros/Cons)

    The Prepaid Tuition Program leverages tax benefits while also allowing you to save for college expenses at today’s rate. When you enroll, you are able to effectively freeze current tuition rates until the beneficiary is ready for enrollment. This is made possible because many states back and even guarantee prepaid plans, so your plan will continue to grow in response to regular inflation.  

    A 529 prepaid tuition plan is different from the traditional 529 college savings plan in that it is guaranteed by the state, whereas a savings plan is not. Because of this, there are more stringent requirements than the savings plan, imposing restrictions on your age, residency, grade, and school. 

    Both offer tax advantages on earnings and assess penalties for non-qualified withdrawals. However, the prepaid tuition program does not cover expenses like room and board. There are also no investment options available, but you do have the flexibility to choose the beneficiary.

    Education Savings Plan

    The 529 College Savings Plan is undeniably a popular option for your education savings plan, but it is not your only choice. 

    Other options for your education savings account include the following: 

    • Coverdell Education Savings Account – This is a more flexible plan that allows you to begin using funds much earlier, from elementary school through college. 
    • UGMA Custodial Account – Short for the Uniform Gift to Minors Act or Uniform Transfer to Minors Act, this account allows you to save for more than just college with a fund that can also be used for your beneficiary’s first home or even business.

    A Coverdell account is a beneficial vehicle when saving for a beneficiary’s education, but once the child comes of age, you will no longer be able to exert any control over the account. UGMA accounts, on the other hand, allow greater flexibility in future spending, but these transfers are considered irrevocable once the child reaches the age of majority.

    What happens to a 529 plan if not used?

    Just because a family saves for higher education doesn’t mean that the money will actually be used. Sometimes, the beneficiary does not need the money due to a scholarship or the child chooses to forego school for the military instead.

    Whatever the reason, you do not have to worry about your money being lost. There are a few options available to you, including leaving your money right where it is for future use. You could also use the funds to pursue your own higher education with many community colleges and area programs offering a curriculum that accepts 529 plans. 

    If you have put away your school books for good, you can transfer the funds to another beneficiary. There are some limitations in order to avoid tax penalties, like your beneficiary cannot skip a generation, but it’s a great option for parents with more than one child.

    529 plans are also a fantastic resource for paying off student loans. Student debt is a serious issue in the U.S., but your 529 savings can help reduce your overall debt using tax-free distributions. There is a $10,000 limit, but it still serves to take a huge chunk out of those bills.

    Methodology

    Finding a 529 plan can be confusing to many people because the plans are state-sponsored and therefore, can infer exclusivity. However, many plans are open to all U.S. residents regardless of where you live. We chose plans from four different states to provide a more comprehensive list of options.

    To find the best 529 plans, we compile top rankings and customer ratings to obtain a well-rounded picture of a plan’s fees and capabilities. 

    All four of our picks are the only plans to earn Morningstar’s highly coveted 2019 Gold rating. Morningstar analyst ratings provide an annual ranking of 529 plans based on five factors that include aspects like price, performance, and process. 

    Ratings are not all we consider, however. We also analyze market trends to identify high-performing plans from those that offer fewer advantages.

    All plans provided here offer direct sales, so you are not required to utilize a professional broker to enroll, which adds an extra level of versatility when choosing the best 529 plan for you.

    About the Authors

    The Reviews.com staff is dedicated to providing you with all the deep-dive details. Our writers, researchers, and editors came together from Charlotte, Seattle, San Juan, Fort Worth, Fort Lauderdale, San Diego, and Chicago to put this review together.