As a followup to my recent article on 529 plans, I thought I’d highlight the most recent batch of 529 plan ratings from Consumer Reports. For those that aren’t familiar with them, 529 plans are tax-advantaged savings plans that are designed to encourage people save for future college costs.
The following list of the best 529 plans is based on investment flexibility, fees and expenses, and 2008 performance. While it’s tough to learn much from performance during such a dismal year, some plans have clearly been holding inappropriate allocations. For example, one of Utah’s age-based portfolios, which is targeted at students over the age of sixteen (i.e., with just 1-2 years before they need the money), was so heavily weighted toward stocks that it lost over 26% last year.
With that as a backdrop, here are the ratings…
The five best 529 plans
- Path2College 529 Plan (Georgia; TIAA-CREF)
- College Savings Iowa (Iowa; Vanguard/Upromise)
- Bright Start College Savings Program (Illinois; Oppenheimer)
- Mississippi Affordable College Savings Program (Mississippi; TIAA-CREF)
- Direct Portfolio College Savings Plan (Colorado; Vanguard/Upromise)
Note that, as long as you’re using a “college savings plan” as opposed to a “pre-paid tuition plan, ” you’re not locked into a particular school (or even state). See my earlier article for details.
Don’t forget the tax breaks
Another factor to consider is that many 529 plans offer state residents an income tax deduction on at least a portion of their contributions. While that won’t be enough to tip the scales in favor of a fee-laden plan, it might be enough to make a decent plan look great.