Are you starting to plan for your child to go to college someday? Chances are you’re interested in learning about 529 savings accounts, which are the most popular way to save for college. If you’re serious about using a 529 plan to help fund your little one’s future education, you’re on the right track. But narrowing down the list to the best 529 account can be overwhelming. With many different available plans to choose from, figuring out the single best 529 account can be a big task. So, I thought I would provide a few tips to help you get started in finding a 529 plan.
When it comes down to finding the best plan it’s essential to compare the universal features among all the plans. By figuring out these features along with how they differ from one plan to another, you’ll be able to determine which plan is best suited for your particular situation.
Prepay or Build Your Portfolio?
Photo © by Sergio Goncalves Chicago
The first thing you’ll want to ask yourself is, do you want to build your portfolio or prepay tuition? Many people don’t realize there are really two distinct kinds of 529 plans.
The prepaid plans let you purchase future semesters or units of education using today’s prices. On the other hand, 529 savings account plans let you invest your money which will grow based on how the investments you chose perform.
If you’re looking for simplicity and safety then stick to the prepaid plans. If you want to earn more and are not adverse to investment risk, then choose a savings plan. Of course, many plans will do the investing for you and decrease investment risk to preserve principle as the child gets closer to attending school.
In-State or Out of State?
The next thing to decide on is whether to go with an out of state plan or an in-state plan. Some states offer credits or deductions for using a plan from your home state, while others give exemptions from paying income tax on your withdrawals. Some states even offer both. You’ll want to research this carefully before deciding on a plan.
Contribution Rules and Costs
You’ll want to also compare the contribution rules and any costs involved. Each plan is slightly different with some plans requiring minimal amounts for the initial investment and any additional amounts invested. Many plans also have caps on how much you’re allowed to contribute.
As far as costs go you’ll want to see which plan charges what? Most of these accounts come with an assortment of management, administrative and broker’s fees. A good rule of thumb is to keep all of your combined expenses paid out annually to between 1% and 1.5%. Anything over this number and you’re not getting the best deal, as the cost can begin to slowly eat away at the growth of your investment.
Financial planning for college can be overwhelming sometimes. Don’t worry, while it all may feel complicated at first, you’ll quickly find that with a little time and effort you’ll be fine. It’s important to do your homework, but don’t forget to seek the advice of a qualified financial adviser before making any final decisions.
Hopefully, these tips on choosing the best 529 savings account for your needs, has given you an insight into some of the things you should look out for before making a final decision.
About Jason Price