529 Plans

The 529 plan is an investment account that offers everyone the advantage of tax-free growth and many the benefit of a state income tax reduction as long as the money is used for education when withdrawn.

If your state offers a tax break for contributing to your own state’s plan, the best plan is almost certainly your own state’s plan.

On the other hand, if there is no state tax incentive to contribute to your own state’s plan (or any plan), you might as well choose a plan that has the best investment options. Generally, that means having a reasonably broad range of low-cost investment options. The cap at which contributions must cease may also be a consideration; the higher, the better. Plans that fit the bill and are frequently mentioned in the “Best of” lists include CA, NV, NY, UT, AZ, DE, MA, NH, MI, and probably a couple others. Any of these plans will offer a range of index funds with expense ratios under 0.20%.

Whether or not such a plan makes sense for you depends on your risk tolerance, how dependent you are on those particular dollars fully funding education, and your interest in multi-generational funding.

If a 529 plan is right for you, here are plan options by state. (Disclosure: we get paid if you open a plan through these links. By doing so you are contributing to our charitable mission.)