529 College Savings Plans: What Is The Best Plan For Your Family?
Updated September 9, 2024 at 4:11 pm
An increasing number of families are turning to 529 college savings plans as a smart investment strategy for their children’s educational journey. According to data from the National Association of State Treasurers’ College Savings Plans Network, 529 savings plans now hold a total of $412.5 billion in assets, with an average account size of $25,903.
With most states offering their own 529 plans, and many allowing out-of-state investors to contribute, choosing the ideal 529 plans can be daunting. If you’re searching for low fees and flexible investment options, we have you covered. From the well-regarded U.Fund College Investing Plan in Massachusetts to Illinois’ Bright Start Direct-Sold College Savings Program, we’ll offer information to assist you in making the right choice.
Our Methodology Newsweek Vault’s loan experts evaluated multiple data points to help our readers make sense of their borrowing options across student loans and personal loans. To narrow down the best available offers, we weigh the product pros and cons across five core categories, including:
- Application process
- Eligibility requirements
- Interest rates
- Loan amounts (minimum and maximum)
- Repayment flexibility
Our Picks - Best for No Annual Fee: Massachusetts U.Fund College Investing Plan
- Best for Investment Diversity: Ohio CollegeAdvantage 529 Direct Plan
- Best for Low Fees: New York 529 College Savings Program
- Best for In-State School Partnership: Oregon College Savings Plan
- Best for High Contribution Limit: New Hampshire UNIQUE College Investing Plan
- Best for In-State Tax Benefit: Illinois Bright Start Direct-Sold College Savings Program
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6 Best 529 College Savings Plans
Best for No Annual Fee
Massachusetts U.Fund College Investing Plan
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Why We Chose It
The U.Fund College Investing Plan offers numerous advantages. This includes tax-free growth and withdrawals for eligible education costs. Massachusetts residents can also claim a state tax deduction. Funds can be used at any accredited college or university in the U.S. And you can withdraw up to $10,000 each year for K-12 tuition.
There is no minimum investment required and no annual account fee. The plan offers a variety of investment options managed by Fidelity Investments.
Pros
- Tax-free growth and withdrawals
- Usable at any U.S. college and for K-12 tuition
- Managed by Fidelity with various investment options
Cons
- Subject to market fluctuations
- Management fees and other costs can impact overall returns
- Must be used for qualified education expenses
Best for Investment Diversity
Ohio CollegeAdvantage 529 Direct Plan
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Why We Chose It
This plan offers a diverse range of investment options, including ready-made choices based on age and custom options tailored to your risk tolerance.
Pros
- Multiple investment plan options
- Tax benefits for state residents
- Low fees
Cons
- Higher minimum contribution
- Other plans offer more substantial tax benefits
- No customized portfolio option
Best for Low Fees
New York 529 College Savings Program
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Why We Chose It
This plan stands out for its exceptionally low fees and costs compared to other programs.
Pros
- No advisor, commission, or maintenance fees
- Low total annual asset-based fee
- High maximum contribution limit
Cons
- No age-based portfolio options
- Portfolio risk doesn’t taper over time
Best for In-State School Partnership
Oregon College Savings Plan
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Why We Chose It
Participants receive additional savings through Oregon Scholars program when enrolling in a state partner school.
Pros
- Discount for attending an in-state partner school
- Variety of portfolio options
- No enrollment fee
Cons
- Higher minimum contribution
- Low tax benefit for in-state participants
- No tax benefit for out-of-state residents
Best for High Contribution Limit
New Hampshire UNIQUE College Investing Plan
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Why We Chose It
New Hampshire’s 529 college savings plan offers the highest contribution limit among all available 529 plans, with a maximum of $553,098 per beneficiary.
Pros
- No annual maintenance fees
- $0 initial contribution required
- Customized portfolios available
Cons
- No option to exchange funds between certain portfolios
- Lacks in-state tax benefit (New Hampshire does not collect state income taxes)
Best for In-State Tax Benefit
Illinois Bright Start Direct-Sold College Savings Program
Vault Verified
Why We Chose It
This Illinois direct education savings plan is one of the best 529 plans due to its generous tax incentives.
Pros
- Up to a $20,000 tax benefit for in-state residents
- Various portfolio options
- $50 state-funded seed deposit for eligible participants
Cons
- Tax benefit not available to out-of-state participants
- Some investment options incur high fees
What Is a 529 Plan?
A 529 plan serves as an investment vehicle designed to help families save money for future educational expenses. These state-sponsored plans, managed by investment companies, offer flexibility in covering qualified expenses. These include college tuition, trade school fees, elementary and secondary school costs and even college room and board. Additionally, a portion of the funds, up to $10,000, can be used for qualified student loan repayment.
Why Should I Get a 529 Plan?
The primary advantage of contributing to a 529 college savings plan is the potential for tax benefits. Some states offer a tax credit for contributions, and other states offer deductions from your taxable income for contributions to a 529 plan. In either case, there’s a maximum tax benefit that applies.
Note that using accrued savings from a 529 plan for non-qualified purposes results in federal and state taxes, plus a 10% penalty. However, there’s no federal income tax imposed on earnings when the funds are used toward qualifying educational expenses, and some states exempt earnings from income tax as well.
How To Choose the Best 529 College Savings Plan for You
Selecting the right 529 savings plan involves considering specific details:
State Tax Incentives
Tax benefits vary among 529 college savings plans. Some states offer tax credits, and others offer deductions depending on whether you file a joint or individual tax return. Note that some states offer no tax benefits.
Fees and Expenses
Costs can vary widely between state programs and even between different investment options within the same plan. These costs can include total annual asset-based fees, annual maintenance fees, transaction fees and even printing-request fees.
Investment Diversity
Recognize that 529 plans are also investment vehicles, so it is important to research the range of portfolio options offered—including age-based, target, individual or custom options—to match your comfort level.
Frequently Asked Questions
Are There Any Disadvantages to a 529 Plan?
Some 529 plans have enrollment and ongoing management fees, and although these fees are usually small, they can add up over time. Additionally, some plans have limited investment options and predesignated intervals during which you can make changes. Finally, if you want to avoid a tax penalty, the savings can only be used toward qualifying educational expenses.
What Happens to a 529 Plan if the Intended Recipient Doesn’t Go to College?
If the primary beneficiary of the 529 plan chooses not to go to college, the savings can be used by another beneficiary for qualified education expenses. This might be yourself or another family member, like a younger child. Additionally, the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act also allows up to $10,000 of distributions from the 529 plan to go toward the repayment of qualified student loans.
How Much Should I Contribute to a 529 Plan?
The ideal contribution amount depends on your financial situation and savings goals. Use resources like the U.S. Office of Financial Readiness’ college savings calculator to determine how much to contribute to reach your savings goal based on the beneficiary’s current age.
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