Who Has The Best 529 College Savings Plan

Minnesota College Savings Plan

Here’s another big surprise from my research. This plan does not get the credit it deserves for out-of-state investors. Good funds, low expenses, straightforward website. As for state income tax, earnings are tax-deferred until they’re withdrawn, and distributions for higher education expenses are free. I wouldn’t be surprised to see people considering this one a top-tier plan soon.

The Top 529 College Savings Plans Of 2020

A look at how 529 investments stack up under our enhanced methodology.

Each year, Morningstar’s team of manager research analysts evaluates the 529 investment universe and assigns forward-looking, qualitative Morningstar Analyst Ratings for 529 college savings plans based on our assessment of their investment merits. This year is pivotal, as it marks the first methodology enhancement to the ratings that debuted eight years ago. This reflects our understanding of what drives compelling outcomes for 529 plan participants and takes into account the broader industry’s evolution and rising standards.

This year, Morningstar analysts assigned ratings to 61 plans that captured 97% of the more than $363 billion invested in 529 plans as of Aug. 30, 2020.

Under the enhanced methodology, we now organize our research around four key pillars: Process, People, Parent, and Price. Pillar-level research informs our holistic view of plans and results in the Analyst Rating for 529 plans, a five-tiered scale that, from highest to lowest conviction, includes three Morningstar Medalist designations , Neutral, and Negative. This year’s review led to a number of ratings changes that included 12 upgrades and 15 downgrades. We also initiated coverage of three plans and ceased coverage of four.

Wisconsins 529 Plan Edvest

Wisconsins Edvest program is available to residents of any state, and the 529 plan is another highly regarded investment option. The plan offers 18 age-based options and allows you to take on a more aggressive portfolio where you could earn a higher return. Edvest also offers FDIC-backed products, so you have the option of a guaranteed, risk-free return. Edvest uses funds from well-known asset managers TIAA-CREF and T. Rowe Price, among others. Wisconsin residents can receive up to $3,200 in state tax deductions per beneficiary.

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Who Should Get A 529 Plan

Anyone who wants to save for future college expenses and take advantage of potential tax savings should consider getting a 529 plan. Before you invest, make sure youre willing to keep the funds in the account for the long run, as you may be charged fees if you need to make an early withdrawal. Plus, consider the impact it might have on your financial aid eligibility since a 529 plan may affect the ability of a student to qualify for financial aid based on need.

Oregon College Savings Plan: Oregon

• Minimum Opening Balance: $25
• Minimum Additional Contribution: $5
• Maximum Cumulative Contribution: $400,000 per beneficiary
• Fees and Expenses: All accounts have an unavoidable account management fee of 0.25% investment fees and expenses range from 0.0% to 0.46%, depending on portfolio type
• Tax Benefits for In-State Participants: Up to $150 in annual state income tax credits on contributions from individual taxpayers and up to $300 in annual state income tax credits on contributions from joint taxpayers

The Oregon College Savings Plan mirrors my529s unorthodox but effective strategy for delivering tax advantages to in-state participants. That advantage knocks up to $150 off individual participants state income tax bills and $300 off married couples when fully utilized. The Oregon plan also has manageable account minimums, solid maximum aggregate contribution limits, and reasonable investment fees and expenses.

The biggest drawback is an unavoidable account management fee of 0.25% per year. Thats particularly painful for frugal savers invested in low-cost index funds and could well be a deal-breaker for the truly fee-averse.

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What Are The Types Of 529 College Savings Plans

There are two major types of 529 plans: 529 tax advantage and 529 prepaid plans

• 529 tax advantage. This is the most popular 529 plan and has strong tax advantages. Your investments grow tax-free, and you also withdraw funds tax-free for education expenses, such as tuition, room and board and assigned textbooks. You can use withdrawals from education savings plan accounts at any college or university, and some trade schools. You can also use your education savings plan to pay up to $10,000 per year, per beneficiary, for tuition at any public, private or religious elementary or secondary school.

Louisiana Start Saving 529 Plan

The START Saving Plan is the name of Louisiana’s 529 Plan. This plan offers a variety of investment options, including age-based portfolios that become more conservative as the child approaches college, and static investment fund options.

The funds offered include Vanguard.

Fees:

There are no fees for this plan. Costs are covered by the State.

The underlying funds all charge expense ratios from 0.04% to 0.35% depending on the investment option.

Who Should Use It:

We recommend that Louisiana residents use the Louisiana START Saving 529 plan due to the tax benefits, low fees, and plan investment options.

We recommend that out-of-state residents utilize other plans .

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Plan Rankings Q3 2021

Each quarter Savingforcollege.com analyzes the investment performance figures for thousands of 529 portfolios and ranks the 529 savings plans from best to worst for one-year investment performance, three-year investment performance, five-year investment performance and ten-year investment performance.

What To Consider When Opening An Account

There are several factors to consider when opening a 529 college savings plan.

The first factor to consider is whether you get any state benefits for your contribution to a 529 plan. Right now, 30 states offer tax deductions for contributions to a 529 plan. However, of those 30 states, only 6 of them offer tax deductions to use ANY state’s plan: Arizona, Kansas, Minnesota, Missouri, Montana and Pennsylvania.

The other remaining 24 states require you to use their state’s 529 plan if you want to get a tax deduction on your state income tax .

For the other 20 states that get no tax benefits for contributions, and the 6 states where you can contribute anywhere, you should consider the following:

• Investment Performance Over Time
• Investment Fees

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How Does Investing Work

If you start an account yourself with Edvest, you can pick different levels of investment risk.

The most popular option is a targeted enrollment investment, in which your account takes on slightly riskier investments early and then makes more conservative investments as it becomes close to the time for your child to go to college. That helps ensure your account balance does not fluctuate too much right as your child needs it.

State 529 Plans Usually Trump Other Options The Right One For You Depends On What Kind Of Investor You Are

For most parents, saving for college feels like climbing to the summit of a very tall mountain. And it doesnt help that the path keeps getting steeper tuition hikes have far exceeded inflation over the past several decades. If your child is a newborn, expect a degree from a four-year, in-state public college to run about $222,000, assuming 5% annual growth in the cost of college four years at a private school could be double that.

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Are There Any Contribution Limits Or Income Limits

Regardless of how much money you make, the federal government doesnt place any income restrictions on who can open a 529 college savings plan.

Theres also no defined contribution limit. Just keep in mind that if you invest more than your child needs to pay for qualified education expenses, your child might have to pay income taxes on any withdrawals that arent used to pay for college.

Which State Has The Best 529 Plan Tax Breaks

An investor can mostly use any 529 they please. However, many states offer either a state tax deduction or a state tax credit on contributions up to a certain amount. If your state 529 offers this, you should use it first, at least up to the amount of the tax deduction or credit. The following states offer a state tax deduction or credit for contributions to their 529 plan.

Note that the info in this chart is almost constantly changing. I had to update a half dozen of these the very day of publication and the laws of the various states will continue to change going forward, so if you see an error, please email us at and we’ll fix it.

Let’s spend just a minute on this chart. If you are located in one of these states, the best plan for you is your state plan, at least up to the maximum amount in the chart above. Except where specified per beneficiary, the amounts are per taxpayer. Virginia is an exception, where the deduction is per account. That’s right, savvy Virginians open multiple accounts for additional state tax deductions. Except where specified as a tax credit, it is a deduction, sometimes above the line and sometimes below the line. Note that at the time I made this chart, some states had not yet published the inflation-adjusted amount of their deduction or credit for 2021. For example, my state of Utah offered a 5% credit on the first $2,040 contributed in 2020. That amount should go up slightly for 2021. I’ll try to update those as I get the information.

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The Best 529 Plans: The Bottom Line

Look to your state plan first to see if you are eligible for a tax break there. Otherwise, pick a plan out of the top ten above and go with it. Certainly, those who took my advice a few years ago and went with the Utah plan have had little reason to regret it. But there’s no reason to be dogmatic about it. Enough other 529s have lowered expenses that there are now lots of good options out there. By carefully selecting investment options at any of the top twelve you can keep your expenses low enough that they won’t be a significant drag on your returns.

What do you think? Which 529 plan do you use and why? Which would you use if you didn’t get a state tax deduction or credit? Comment below!

Nevada The Vanguard College Savings Plan

Nevada is another state with more than one 529 plan make sure you pick the right one. This one, run by Vanguard, is often considered a top plan. The big advantage for out of state investors is that you can look at it while logged in to your regular Vanguard account, simplifying your financial chores.

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What Are 529 Plans

A 529 plan is a savings tool designed to help investors save for the educational expenses of their children or grandchildren. All 529 plans, also known as qualified tuition plans, are tax-advantaged savings plansjust like individual retirement accounts and are sponsored by various entities including schools, states, and state agencies.

Every 529 plan covered the cost of post-secondary education in the past, but the Tax Cuts and Jobs Act expanded the usage of plans to include all forms of education, including K to 12. Another bill, the Setting Every Community Up for Retirement Enhancement Act signed into law on Dec. 20, 2019further expanded the rules surrounding 529 plans. According to Section 302 of the Act, plan holders can also use funds to pay for qualified expenses relating to a beneficiary’s apprenticeship program including tuition, other fees paid to the institution, and course material. Programs must be approved by the Department of Labor. Another change includes the ability to withdraw a maximum lifetime amount of $10,000 per student to pay down qualified education debt.

There are two different kinds of 529 plans: Prepaid tuition plans and education savings plans.

Compromise: Start A 529 Plan When Youve Maxed Out Your Retirement Fund

529 plans certainly have their strong points and most people should start them, but they work best in conjecture with a retirement account such as a Roth IRA.

With Roth IRAs, there are limits to how much you contribute in a year$5,500 to be exact. 529 plans arent as constrained. You can contribute up to $300,000 dollars overall, since this is likely the cost of a qualified education. But again, if youve contributed this much or even a fraction of this, and your child decides they dont want to attend college, there are serious penalties for using this money for anything other than educational purposes.

Thats why its best to start with a Roth IRA and, if you max that out each year, you can start contributing to a 529 plan.

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Best For Customized Investments: My529

my529

Why We Chose It: We chose my529 as the 529 plan best for customized investments because, in addition to offering a variety of age-based and static investment options, my529 also offers two customizable investment options.

• Gold analyst rating from Morningstar for 10 years

• Maximum contribution limit of $510,000

• FDIC-insured investment options available

• No underlying fund expense ratio fee for FDIC-insured accounts

• Phone assistance unavailable on weekends

• Carries an underlying fund expense fee and an administrative fee

The Utah-based my529 offers education savings 529 plans to people throughout the United States so they can save up to $510,000 for a student to pay for college in the future. Not only can you choose from 12 target-enrollment and 10 static investment options , but my529 also offers more than 30 customizable investment options, making it our choice for best for customized investments.

Youll pay two sets of fees with my529, an underlying fund expense ratio fee for your investment ranging from 0% to 0.353% and an annual administrative fee ranging from 0.10% to 0.15%. As of January 2022, the historical average annualized returns since inception on the my529 investment plans range from 0.40% to 11.54%.

My529’s Gold analyst rating from Morningstar makes it the only 529 plan to have consistently received a top-tier mark each year since Morningstar debuted its ratings in 2012. You can sign up for a 529 plan, manage your account, and contribute online with my529.

When Should I Start A College Fund For My Child

When it comes to saving for your childs college education, the sooner you start, the better. Not only does starting early give your college fund more time to grow, but it also can allow you to reap the benefits of compound interest.

Vanguard provides an excellent example of how compound interest makes an early start valuable. According to the financial services company, if you start saving for college when your child is born and invest $25 per week at 6% annual interest for the next nine years before stopping a total investment of $11,700 your fund will total about $26,750 when your childs ready to go to college at 18. But if you wait nine years before beginning to save, and all other factors remain the same, youll have a fund of only about $15,800 by the time your child is 18. The stark difference is due to compound interest.

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The Smart Way To Save For College

PLANNING & SAVING FOR COLLEGE

Learn about saving for college and find out how the Minnesota College Savings Plan can help you get there.

MORE REASONS TO SAVE

MNSAVES is one of the lowest cost plans in the country. MNSAVES makes selecting investments easy by offering a variety of choices including a new Enrollment Year Investment Option.

How To Open A 529 Plan

You can open a 529 plan directly through a specific states plan or through a broker.

If you invest directly with the state plan, youll have to register, research the available investments and generally track the 529 plan over its lifetime typically all online. In short, youre responsible for managing and overseeing basically all facets of the plan. If you use your own states plan, youll receive any immediate tax benefits, if your state offers any.

If you open an account through a broker, you may be able to benefit in a couple ways. First, you can often choose from multiple 529 plans, though you may lose some state tax deductions if you opt for an out-of-state plan. Second, you may be able to take advantage of the advice of an investment professional, who can help you set up how to invest in the plan and review it over time.

Either way, its better to start earlier than later, since it will allow your money more time to grow and compound.

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The Valedictorians Of 529 Ratings

Four plans merited a Morningstar Analyst Rating of Gold this year. In alignment with the industry trends we uncovered in the 529 Landscape Report, these plans stand out for their low costs, strong stewardship, and exceptional investment options.

We upgraded Californias ScholarShare College Savings Plan to Gold in 2019, as its board voted to move its age-based portfolios to a progressive glide path in February 2020. Thats an industry best practice, as it smooths the transition from stocks to bonds and reduces the risk of making a large shift out of equities just after a market dip when there’s the potential to lock in losses. The plans portfolios also rank among the most affordable in the industry within their respective categories.

Virginias Invest529, Illinois Bright Start College Savings, and Utahs my529 continue to distinguish themselves from other plans for their excellent state oversight and program management, best-in-class investment options, and thoughtful investment philosophy.

These plans have stayed ahead of their peers by innovating in areas where most 529 plans arent. For instance:

• Virginias Invest529 plan replaced its actively managed REIT fund with a combination of two direct real estate sleeves and a passively managed fund to temper volatility.
• Utahs my529 plan enhanced its principal protection options at the end of the age-based glide path where balances are highest.