529 college savings plans are a better deal than ever

A baby sits atop stacks of U.S. dollar bills.

“So, you've started my 529 college savings plan, right?” (Photo Credit: CC BY-ND/Janielle Viggiano/Dr. Boyce Family Finance)

The earlier you begin to save for a child’s college education, the better. A 529 college savings plan enables you to watch money grow tax-free until it’s time for college. Particularly if a child doesn’t qualify for scholarships, a 529 plan can be quite useful.

Recession creates 529 bidding war

Many 529 plan administrators noticed that the recession had kept cash-strapped parents from contributing to their compound savings accounts. Hence, fees began to drop, which resulted in a 529 savings plan price war in which the consumer is the real winner. Money goes into conservative-mix, age-based portfolios – which function much like mutual funds – and the payoff comes when the child reaches college age. These 529 plans must have state sponsorship, and each state typically has more than one sponsored plan – some have as many as five.

However, cream tends to rise to the top. Here are some of the best 529 college savings plans available, according to consumer advocate Clark Howard:

Utah: Utah Educational Savings Plan Trust

Iowa: College Savings Iowa

New York: New York’s College Savings Program – Direct Sold

The best of the rest

Alaska: University of Alaska College Savings Plan

Arizona: Fidelity Arizona College Savings Plan

Arkansas: Gift College Investing Plan

California: The Scholarshare College Savings Plan

Colorado: Direct Portfolio College Savings Plan

Connecticut: Connecticut Higher Education Trust

Delaware: Delaware College Investment Plan

Georgia: Path2College 529 Plan

Idaho: Idaho College Savings Program (iDeal)

Illinois: Bright Start College Savings Program Direct Sold Plan

Indiana: College Choice 529 Direct Savings Plan

Kentucky: Kentucky Education Savings Plan Trust

Louisiana: Start Saving Program

Maine: Next Gen College Investing Plan – Client Direct Series

Maryland: College Savings Plans of Maryland – College Investment Plan

Massachusetts: U.Fund College Investing Plan

Michigan: Michigan Education Savings Program

Minnesota: Minnesota College Savings Plan

Mississippi: Mississippi Affordable College Savings Program

Missouri: MOST (Vanguard)

Nevada: The Vanguard 529 Savings Plan

New Hampshire: Unique College Investing Plan

New Mexico: The Education Plan’s College Savings Program – Direct Sold

North Carolina: North Carolina National College Savings Program (Vanguard)

North Dakota: College SAVE 529 Plan

Ohio: Ohio College Advantage 529 Savings Plan (Vanguard)

Oklahoma: Oklahoma College Savings Plan

Oregon: Oregon College Savings Plan (Vanguard)

Pennsylvania: Pennsylvania 529 Investment Plan

South Carolina: Future Scholar 529 College Savings Plan – Direct Sold

South Dakota: College Access 529 – Direct Sold

Texas: Texas College Savings Plan

Vermont: Vermont Higher Education Investment Plan

Virginia: Virginia Education Savings Trust

Choosing the best 529 plan for your child

Consider age-based portfolios, which start strong but gradually become more conservative as the goal comes into view (the child’s age approaches 18). Another option is a Coverdell Education Savings Account, where money can be saved at a tax advantage either for college or private school grades 1 through 12. The annual limit is $2,000 and you have to manage the investment package yourself. Coverdells do not require state sponsorship. You can sign up for a Coverdell at most any bank or broker. Independent 529 plans are also available, where tuition at participating colleges are paid at current prices, to guard against the inevitable future price hikes.

Sources

Clark Howard

Private College 529 Plan

Comparing 529 college savings plans

http://www.NewAmsterdamLife.com Thomas

Great Video – Very informative and explains the key features of 529 clearly. It should be said that 529 isn't the only college option. The College First plan offers tax-deferred growth, tax-free access to cash, but offers more flexible access to cash (no penalties). However, the college first plan doesn't provide the state tax deductions mentioned. In states such as California, Florida, New Jersey, Texas the 529 plan doesn't offer these anyway.

With regard to college fees inflation, only a few schools are slowing the growth of their fees. Fees at top schools in particular have generally been rising by 4%-6% year on year, and will continue to do so for some time to come. It should be noted that financial assistance has also been increasing at these schools, so the true out-of-pocket expense to parents/students isn't as much as the sticker price of say $45,000 per year at an Ivy League school.

529 college savings plans are a better deal than ever