Best 529 Plans of 2023

With college costs getting more and more expensive, 529 plans are a great way for parents to save for their children's education. Almost all states operate 529 plans, but you don't need to pick your own state's plan. Many plans are open to residents of any state. To help you find the right one, this guide will cover the best 529 plans based on your goals and financial situation.

What is a 529 plan?

What is a 529 plan?

A 529 plan is a tax-advantaged account designed to pay for a beneficiary's education costs. The account owner, often but not always the beneficiary's parent, opens and funds the account. Contributions are made using after-tax dollars.

While originally solely for higher education, 529 plans can now be used for kindergarten through grade 12 costs, apprenticeship programs, and paying back student loans. There are two types of 529 plans:

• Education savings plans are investment accounts. Funds are used to invest in stocks and bonds, growing tax-free, and withdrawals are also tax-free when used for qualified education expenses. This is the most common type of 529 plan.
• Prepaid tuition plans allow you to purchase units at participating colleges in advance. You effectively lock in the current tuition.

Education savings plans are the far more flexible option. The beneficiary can use funds from an education savings plan for tuition and fees but also for books, other school supplies, meal plans, and room and board, including off-campus housing. With a prepaid tuition plan, the beneficiary can typically only use funds for tuition.

How to pick one

How to pick a 529 plan

The primary goal with a 529 plan is to save as much as possible for your beneficiary's college fund. There are several factors to look at to pick the right 529 plan:

• Tax benefits: Many states offer either tax deductions or tax credits to residents who contribute to their state's 529 plan.
• Investment options: Each 529 plan offers its own investment options. The best 529 plans will provide a variety of options to fit your goals and risk tolerance.
• Fees: Most 529 plans have an expense ratio -- a small percentage fee based on the amount of assets under management. Some also have other types of fees, such as annual maintenance fees.
• Type of plan: You may have the option of an education savings plan or a prepaid tuition plan. Education savings plans are normally preferable, but some parents like to lock in tuition rates.

Now, let's look at the top 529 plans for different situations.

Best for Low Contribution

Best for Low Contribution: ScholarShare 529 College Savings Plan

If you're starting out with smaller contributions, we recommend California's ScholarShare 529 College Savings Plan. There's no minimum investment amount, and this plan is low on fees. It doesn't charge any sales fees, startup fees, or maintenance fees.

All you pay is an annual asset-based fee, which depends on the beneficiary's enrollment year and the type of investment portfolio you choose. Annual fees currently range from just 0.04% to 0.43%.

Like other 529 plans, this plan has penalties if funds aren't used for qualified education expenses. These include a federal 10% tax penalty on earnings, as well as federal and state income taxes. Non-qualified withdrawals may also result in an additional 2.5% tax for California residents.

Best Affordable Option

Best Affordable Option: Texas College Savings Plan

While there are several 529 plans that keep fees to a minimum, the Texas College Savings Plan is a standout here. It offers a variety of age-based, risk-based, and individual asset class options. They all have affordable fees, with expense ratios in the range of 0.31% to 0.40%, so no matter what you choose, you won't need to pay much.

Age-based plans have expense ratios starting at 0.40% for beneficiaries up to eight years old and tapering down to 0.37%. If you want to invest in the stock market, a U.S. stock portfolio costs just 0.33% per year.

You can open a Texas College Savings Plan account with a minimum of $25. After that, subsequent contributions can be as low as $15 if you fund through an automatic investment plan or payroll deduction.

Best for High Returns

Best for High Returns: CollegeChoice 529

Indiana's CollegeChoice 529 plan is our top pick for high returns due both to the performance of its investment portfolios and a sizable state income tax break. Indiana taxpayers who pay into a CollegeChoice 529 plan can get a 20% state income tax credit on those contributions. The tax break is capped at $1,500 per year or $750 per year for those who are married filing separately.

Since quite a few 529 plans have affordable options for the S&P 500 and other quality investments, tax breaks can make a big difference in which plan gets you the most bang for your buck. You may want to start with your state's 529 plan to see if it offers tax breaks for residents. While Indiana's CollegeChoice 529 is great overall, it's best for people who live and pay taxes there.

Best for Diverse Investment Options

Best for Diverse Investment Options: Bright Start

You'll have plenty to choose from with Illinois' Bright Start 529 plan. It provides investment options from more than 10 different fund families, including Vanguard and T. Rowe Price. You can choose from age-based, target, and individual fund portfolios and customize your plan based on your risk tolerance.

One of the advantages of Bright Start is that its age-based and target portfolios also have multifirm investment options available, allowing you to build a portfolio from different fund families.

Bright Start's portfolios offer solid performance with fees that are reasonable, although not the lowest you can find. The total asset-based expense ratio ranges from 0.07% to 0.79%.

Best for Wide Availability

Best for Wide Availability: Vanguard 529 Plan

The Vanguard 529 Plan is administered by the state of Nevada, but it's open to anyone, and it's a fantastic choice no matter where you live. Vanguard is known for low fees, and its 529 plan doesn't disappoint in that regard.

There are no enrollment fees, transfer fees, or commissions. Target enrollment portfolios have expense ratios of just 0.14%, while fees on individual portfolios range from 0.12% to 0.42%.

The main downside of the Vanguard 529 Plan is a rather high initial investment minimum of $3,000. For Nevada residents, the minimum is $1,000, which is still more than many 529 plans. Minimum additional investments are $50.

Best for High-Risk Tolerance

Best for High-Risk Tolerance: Oregon College Savings Plan

The Oregon College Savings Plan offers many portfolio options, and they all tend to perform well. We recommend it if you have a high risk tolerance because its aggressive target portfolio, in particular, has done better than similar offerings from other 529 plans.

This 529 plan charges an annual fee of 0.20% and variable asset-based fees of 0% to 0.466%, depending on the investment portfolio. For an aggressive target portfolio, total annual asset-based fees are 0.24%.

Anyone can invest in an Oregon College Savings Plan. However, you only get tax breaks on contributions if you're an Oregon resident.

Best Overall Option

Best Overall Option: Utah my529

For its consistent excellence, Utah my529 is the best of the best. It has earned Morningstar's Analyst Rating of Gold™, a rating few 529 plans receive, for 12 consecutive years.

Utah my529 gives parents plenty of portfolio choices. There are 12 target enrollment date portfolios, as well as static investment options. You also have the option of a customized portfolio.

Fees are a bit higher with this 529 plan than some other options. The asset-based fee range is 0.131% to 0.137% for target enrollment date portfolios, 0.100% to 0.211% for static portfolios, and 0.130% to 0.455% for customized investment options. But slightly higher fees are a small price to pay for top-notch performance from a well-managed 529 plan.

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Which 529 plan is right for you?

The right 529 plan for you will depend on what features you're looking for. Some 529 plans are great if you want low fees, others offer a variety of investment options, and performance also varies from plan to plan. Start with the 529 plans on the list above, as well as your own state's plans, to see which is the best fit.