How to Choose the Best 529 Plan for Your Child’s Education
Choosing a 529 college savings plan for your child can feel overwhelming with over 100 options available across all 50 states. But with the right approach, you can find a plan that maximizes your savings while minimizing fees and maximizing tax benefits.
What is a 529 Plan?
A 529 plan is a tax-advantaged investment account designed specifically for education expenses. Earnings grow tax-free, and withdrawals for qualified education expenses are also tax-free at the federal level. Most states also offer tax deductions or credits for contributions.
Key Factors to Consider
1. Start with Your State’s Plan
Your home state’s 529 plan should be your starting point. Many states offer tax deductions or credits for contributions to their in-state plan. For example, Pennsylvania offers up to a $36,000 annual tax deduction for both in-state and out-of-state participants, while states like Ohio offer up to $4,000 in annual deductions.
However, some states like California, New Hampshire, and North Carolina offer no tax incentives at all. If your state falls into this category, you’re free to shop around for the best plan nationwide.
2. Compare Fees and Expenses
Fees can significantly impact your long-term returns. Look for plans with expense ratios under 0.50%. Direct-sold plans (purchased directly from the state) typically have lower fees than broker-sold plans.
According to recent fee studies, top low-cost plans include:
- Utah’s my529 (fees as low as $128 over 10 years)
- New Hampshire’s UNIQUE College Investing Plan
- Wisconsin’s Edvest
- Nevada’s Vanguard 529 Plan (expense ratios as low as 0.14%)
3. Review Investment Performance
While past performance doesn’t guarantee future results, reviewing historical returns can help you assess a plan’s track record. Top-performing plans in recent years include those from Illinois, Virginia, Utah, and Massachusetts.
Morningstar rates 529 plans with Bronze, Silver, and Gold medals, with Gold-rated plans earning their highest confidence. Gold-rated plans for 2025 include Utah’s my529, Pennsylvania’s 529 Investment Plan, and Illinois’ Bright Start.
4. Consider Investment Options
Most families choose age-based portfolios (also called target-date portfolios) that automatically adjust asset allocation as your child approaches college age. These shift from aggressive growth investments when your child is young to more conservative options as college nears.
Ensure the plan you choose offers:
- Age-based portfolio options
- A variety of underlying investment options (index funds, actively managed funds)
- Low-cost fund options from reputable managers like Vanguard, Fidelity, or T. Rowe Price
5. Check Minimum Contribution Requirements
Some plans have low minimums ($25 for Ohio’s CollegeAdvantage), making it easy to start saving regardless of your budget. Others may require higher initial deposits.
Top-Rated 529 Plans for 2025
Based on independent ratings from Morningstar and SavingForCollege.com, these plans consistently rank among the best:
Gold-Rated Plans:
- Utah’s my529
- Pennsylvania 529 Investment Plan
- Illinois’ Bright Start Direct-Sold College Savings Program
Other Top Performers:
- Ohio’s CollegeAdvantage
- Virginia’s Invest529
- Massachusetts’ U.Fund College Investing Plan
- New York’s 529 College Savings Program
- California’s ScholarShare 529
- Nevada’s Vanguard 529 Plan
Making the Decision
To choose the best 529 plan:
- Calculate the value of your state’s tax benefit (if offered)
- Compare that benefit against potential fee savings from out-of-state plans
- Consider your investment timeline – if your child is already in high school, prioritize low fees and your state’s tax benefit
- Review the plan’s investment options to ensure they match your risk tolerance
- Check minimum contribution requirements
Remember, you can open a 529 plan from any state regardless of where you live, and your child can use the funds at eligible colleges nationwide. The key is finding the right balance between tax benefits, low fees, and strong investment options for your family’s situation.
Always consult with a financial advisor to determine the best strategy for your individual circumstances.
