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Sharpen Your Pencil: Pointers for Picking a 529 Plan

As today’s grandparents become more investment savvy and 529 plans become more established, we are seeing an increased reliance on them. Yet, given the vast array of options, choosing the best plan for your family is far from academic. To help you do your homework, here are some key questions to keep in mind.

In-state or out of state?  It Depends.

To help families save for college, section 529 of the Internal Revenue Code lets states operate tax-favored college savings plans. Contributions to the plan grow federal tax deferred, and withdrawals are federal tax free if used for qualified education expenses. States also offer tax benefits, which vary.  Sounds straightforward, right?  It would be, except you’re not restricted to investing in your home state’s plan.  Before being swayed by in-state tax incentives, consider whether such breaks make up for high fees or sub-par investment options. If your home state plan doesn’t measure up, you might be better off elsewhere.

Performance matters

While plan performance shouldn’t be your sole criteria, it does have a meaningful impact on your college savings nest egg—especially as gains and losses compound over time. To see who stacks up, independent informational websites like Savingforcollege.com rank 529 plan performance quarterly, but be sure to compare records over the long haul.  Choose a plan that is consistently named a top-performer over multiple time periods to help maximize your savings.

Read the Fine Print

They say the devil is in the details and 529 plans are no different.  That’s why you should carefully consider investment options and fees. While costs among 529 plans continue to decrease[1], they remain one of the few factors an investor can control.  Evaluate the types of underlying investments available, too, and whether they suit your appetite for risk.  Everyone saves a little differently, so be sure to choose a plan with sound investment options that work for your family.

Given the number of 529 plans out there, the decision may feel overwhelming. Yet, the only real mistake is not choosing a 529 at all. That would mean missing out on tax advantages, as well as estate planning benefits and professional management, too.  An experienced financial advisor can help you open an account today.

To learn more, please visit scholars-choice.com

All investments involve risk, including the loss of principal amount invested.

Grand Magazine is not affiliated with Legg Mason, Inc.

© 2014 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc.  FN1414443

[1] 529 College-Savings Plans Industry Survey. May 29, 2014. Source: Morningstar.



Christine Crosby

About the author

Christine is the co-founder and editorial director for GRAND Magazine. She is the grandmother of five and great-grandmom (aka Grandmere) to one. She makes her home in St. Petersburg, Florida.

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