You've decided that you want to save for your children's college education! That's a great first step to take in preparing financially for the future. But then, you hit a stumbling block - there's a lot of different 529 college savings plan options - where should I open one?
That's a reasonable question - there are a lot of options to open a 529 plan. There are options available directly to consumers, there are options available at brokers, and there are prepaid tuition programs available in certain states. Then, there are the rules for 529 plans.
Thankfully, there aren't really any bad options when it comes to 529 plans. Yes, there are some that are better than others, but in general, you can't mess this up to badly.
Today, I want to cover a few things to think about when opening a 529 plan, and then showcase a few places that are great for opening a 529 plan.
Does Opening A 529 Plan Make Sense?
The first thing you need to ask yourself is whether opening a 529 plan even makes sense financially. It makes the most sense financially when you're saving for college and it's a long way away - 10+ years. We're fans of a 529 plan for saving for college, but it has to be done right.
You see, the big benefit of saving in a 529 plan is that your earnings in the plan can be withdrawn tax free when used to pay for qualified higher education expenses. At the same time, a big drawback of using 529 plan money to pay for college is that money from these accounts don't allow you to use tax credits and tax deductions for your higher education expenses. Basically, you can't double-dip with both 529 tax free money and higher education tax credits.
So, if you don't think you'll get enough growth in your 529 plan to offset the potential for tax credits and tax deductions, it might not make sense to use a 529 plan. This mainly applies to late savers.
If saving in an 529 plan does make sense for your situation, you need to think about where it makes sense to open one.
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 (there currently is no Federal tax deduction for contributing to a 529 plan).
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:
Where To Open A 529 Plan
Every year, Saving For College ranks the top 529 plans by their performance. However, as we discussed above, performance isn't the only factor to consider.
A easy solution is to use a service like College Backer, that takes care of everything for you without thinking too much about it.
A few plans have continued to rank highly over time, and we wanted to share those with you below. If you're considering opening a 529 plan, here are some of the best places to open a 529 plan.
Nevada USAA 529 College Saving
California ScholarShare 529 College Savings Plan
Alaska T. Rowe Price College Savings Plan
What are your thoughts on where to open a 529 college savings plan?