How to Choose a 529 Plan

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By Mark Kantrowitz

July 17, 2020

During our webinar about How to Reach Your College Savings Goals with a 529 Plan, participants asked dozens of questions. Here are the answers to questions about how to choose a 529 plan.

How do you compare 529 plans offered by different states?

You can compare 529 plans based on several important criteria, including

  • Available investment options
  • Costs, including commissions (for some advisor-sold plans) and annual fees (which depend on the portfolios)
  • The plan manager
  • Return on investment
  • Special advantages for state residents publishes quarterly performance rankings and overall ratings of 529 plans to help you compare 529 plans. There’s also a 529 plan comparison tool and detailed reviews of each state’s 529 plans

I am having a hard time figuring out which 529 plan to select. Can you outline the top considerations to look at when making a selection? I am stuck. 

You should always consider your own state’s 529 plan, if your state offers a state income tax deduction or tax credit. You should also consider 529 plans that offer low fees. 

You will then need to consider the tradeoff between low costs for an out-of-state 529 plan and state income-tax breaks for an in-state 529 plan. Generally, you should focus more on low fees when the child is young, then state income tax breaks after the child enters high school.

There are also differences in investment options. 

  • Most 529 plans offer at least one all-stock mutual fund, such as an S&P 500 fund or total stock market fund and at least one short-term bond fund. So, you can mix and match them to match your personal risk tolerance. 
  • 529 plans can also differ in the extent to which they mix in foreign stocks and real estate, which can sometimes yield higher returns, but also higher risk. 
  • Age-based asset allocations can also differ, especially with regard to the initial and final percentage equity. 
  • Some 529 plans offer actively managed funds while others offer passive funds, such as index funds.
  • Some 529 plans offer specialized mutual funds, such as ones that invest in only the stocks of socially conscious companies.

I live in Idaho. Would it be most beneficial for me to use the Idaho state plan, since I can deduct my contributions from my State income tax? Or are there other factors that may outweigh this?

There is a tradeoff between better state income tax breaks and low fees. States with better state income tax deductions or tax credits tend to have higher fees. States with lower fees tend to inferior quality state income tax breaks, with a few exceptions.

If you are lucky, your state’s 529 plan will offer both low fees and a better state income tax break. Otherwise, you’ll need to shop around for a 529 plan with lower fees. 

Generally, families should prefer lower fees when the child is young and better tax breaks when the child is older, since fees apply to the entire investment while tax breaks apply just to the contributions. There is an inflection point around the time when the child enters high school when the focus should shift from low fees to state income tax breaks.

What your thoughts on investing in an out-of-state plan? Pros / cons – New York has low cost and good investment manager / options, but we live in Pennsylvania.

Some states allow a state income tax deduction or tax credit for 529 plan contributions only for contributions to the state’s 529 plan. 

Pennsylvania is one of the seven states that allow state residents to claim the state income tax deduction on contributions to any state’s 529 plan. So, you can choose to invest in the New York 529 plan without many disadvantages.

The other states, aside from Pennsylvania, are Arizona, Arkansas, Kansas, Minnesota, Missouri and Montana.

Depending on your state, there may be other advantages to investing in your state’s 529 plan, such as bonuses for opening a new account for a newborn or newly adopted child, matching contributions for low-income families, and exclusion of the 529 plans from determining eligibility for state grants.

Wondering how your 529 plan may impact financial aid? Use our Financial Aid Calculator to estimate the expected family contribution (EFC) and your financial need. 

Do you recommend starting a 529 plan through a financial advisor? Or, is it okay to sign up directly through whichever 529 plan you want to select?

It’s really a personal decision. 

Most states offer both direct-sold and advisor-sold 529 plans. 

Both direct-sold and advisor-sold 529 plans let you set up an automatic transfer from your bank account, so you can set it up and forget about it.

Direct-sold plans charge lower annual fees and no sales commissions. All direct-sold plans offer age-based or enrollment year investment option where the investment starts off aggressive and gradually shifts to investments with a lower investment risk as the college years approach.

Advisor-sold plans, on the other hand, offer active management and professional advice. Financial advisors can help you plan for college costs as part of a comprehensive financial plan. Financial advisors can also help you avoid panic selling during economic downturns.

Can you suggest a good resource that compares management fees across states? provides several resources that can answer your question. 

The 529 fee study, which is updated annually, compares the 10-year total costs for all direct-sold 529 plans. Since the fees can vary based on the investment options, the 529 fee study lets you compare the state 529 plans based on the lowest and cost highest investment options.

The 529 plan detail pages include the total asset-based expense ratio and management fees for each plan, plus some additional detail.

The 529 plan comparison tool can provide information about enrollment or application fees, account maintenance fees, program management fees, expenses of the underlying investments and the total asset-based expense ratiofor all of the direct-sold 529 plans.

Financial professional subscribers to’s premium services can access fee and performance data for individual plan portfolios.

A good place to start:

See the best 529 plans, personalized for you