Money Tip
Which 529 Is Best for You?

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By Robert Brokamp (TMF Bro)
July 16, 2002

By now, most parents have at least heard about the 529 savings plan, the best way to save for a college education in most circumstances. It's hard to beat the high contribution limits and tax-free growth offered by these state-sponsored investment accounts.

But even if you're sold on the virtues of a 529 savings plan, which should you choose? Since most plans are open to anyone -- you could live in California and contribute to New York's plan for the benefit of your grandchild who lives in Florida -- you face the daunting task of choosing from among the options. Not all plans were created equal. In fact, some stink.

A couple of publications have attempted to make the job easier for you by reviewing the panoply of plans and choosing the best. According to a USA Today analysis of 43 plans, the best are the following: the College Savings Plan of Nebraska, the Virginia CollegeAmerica Plan, the Michigan Education Savings Program, the Tennessee Baccalaureate Education Savings Trust, and the Minnesota College Savings Plan.

The Nebraska plan must have something going for it, because it turned up on the list of Kiplinger's top four 529 plans, along with the Kansas Learning Quest Education Savings Program, New York's College Savings Program, and the Utah Education Savings Plan Trust.

Those plans are good places to start if you're looking for the best plan for your child (or yourself), but don't forget your own backyard. Many states offer perks to residents, such as a state income tax deduction. If your state offers a solid plan and incentives, there may not be a need to look any further.

What else should you look for in a 529 plan? Consider these characteristics:

  • A variety of solid investment options: How have the funds fared over the past few years? Are there enough choices within the plan?
  • Low costs: Look for low expense ratios (less than 0.5%) and low administrative fees. The lowest-cost plans often offer funds from Vanguard and TIAA-CREF.  And don't choose a plan offered solely by brokers unless you need the assistance. You will pay 3% to 5% in commissions up front, and -- according to the USA Today analysis -- many of the broker-sponsored plans have higher ongoing expenses and poor performance records.
  • Rides on the space shuttle: If you find a plan that offers this incentive, we recommend you strongly consider it. Unfortunately, no plan currently offers this feature.

For more assistance in evaluating 529 plans, visit our College Savings Center and

Robert Brokamp thinks the government should come up with cooler names than "529," "401(k)," and "White House." "Space shuttle" is a good start, though "The Ether Eater" would have been good, too. The Motley Fool is investors writing for investors.