When it comes to selecting a 529 plan from the dozens that exist, there’s no one-size-fits-all formula.
Ultimately, it depends on your savings goals, tolerance for risk and time horizon for your child heading off to college.
Bob Mecca, a certified financial planner in Mt. Prospect, Ill., says those looking to participate in a qualified tuition program (529) should start by exploring the plan available in their home state.
“Look first to see if there are any state incentives for going with your own plan,” he says. “It’s great to get that extra tax break.”
Many states, for example, let residents deduct a percentage of their contributions – or waive state taxes on withdrawals for qualified educational expenses (matching the existing federal tax break.)
Of course, you’ll still need to evaluate such factors as the fund manager, the kind of investment options available and expenses.
Though 529s got a bad rap early on for charging excessive management fees, expense ratios have come down “quite substantially” on most plans, said Joe Hurley, a certified public accountant and founder of savingsforcollege.com.
“You can find a number of very low cost 529 plans, where your total expenses including underlying mutual fund expenses may be .30 percent or less,” he says.