What's the right college savings plan for me?

Updated: Dec 19, 2019


We often get the questions "what type of college savings plan is right for us, how do we invest in it, and how much should we invest?".


Alternatives: College savings alternatives include state 529 college savings plans (both direct-sold and broker-sold), prepaid 529 college plans, educational savings accounts, custodial accounts and savings bonds.


Recommendation: Typically the state 529 college plans is the way to go. We prefer these to other options as they can have the greatest flexibility; you can sock away the most money each year, you may be eligible for a state tax deduction and if you elect the proper plan and investment option, they're relatively "self-managing." Which means set it, and almost forget it (we say almost because we're big fans of keeping an eye on your investments).


Most states offer at least one 529 plan option, so how do you know which is the right plan? You shouldn't necessarily elect the 529 plan of your state of residence. Some states plans are better than others from a performance, management and fee standpoint. And the sole benefit of using your own state's plan is typically the tax benefit, which may or may not be major or even relevant in your state, if your state has no state income rate, or doesn't offer a tax deduction for 529 plans.


Your To-Do's: Evaluate the following:

  1. Broker/Direct: There are broker sold plans, which pay a commission back to the broker who sells it to you. These plans tend to be more active than passive which is how they justify their fees. We believe in the passive investment strategies of direct sold plans (meaning, you log on the state 529 website and fill out the forms yourself). If you elect the right one, you will not need to pay a broker fee.

  2. State Tax Rate: Does your state have an income tax?

  3. State Tax 529 Eligible Deduction: Does your state offer a tax deduction for your contributions to 529s?

  4. Strength of Plan: Some plans are better than others. We trust Morningstar and the annual rankings they do of state 529 plans.


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