Contributor, Benzinga
July 21, 2023

Every year, the realization hits home for many families: College is expensive, and it isn’t getting any cheaper, but can savings plans “save you, as it were?

Families reported paying $30,017 on average for higher education in academic year 2019–20, according to a report by Sallie Mae. Families paid $26,266 in 2018–19 and $26,458 in 2017–18. Families spent more on college across all income levels and college/university type, according to the report.

There must be an investment option that works well for normal families and either prevents the need for a student loan or alleviates student debt on some level. That is where the 529 comes into play.

The Best 529 Plans

  • Best Overall: The Vanguard 529 Plan
  • Best for Low Fees: New York’s 529 College Savings Plan
  • Best for Family Wealth Management: Wealthfront
  • Best for Performance: The Ohio College Advantage Direct 529 Savings Plan
  • Best for Fund Selection Options: my529
  • Best for State Tax Deductions: Indiana CollegeChoice 529 Direct

Fortunately, you can tap into ways to get college paid for. Millions of well-organized parents opened 529 plans for their college-bound children or other designated beneficiary long ago, with the hope of covering education expenses long before they are brought to bear. Cracking open the piggy bank to fund a 529 plan can offer a great first step to help tackle the expensive reality of higher education. The earlier that piggy gets broken, the better.

Best Overall: The Vanguard 529 Plan

The Vanguard 529 Plan is a Nevada Trust and has three excellent age-based options that do most of the work for you. They’re a preset mix of Vanguard investments that automatically adjust over time to become more conservative as your child grows. Yes, you can cover education expenses with this plan, but you can also use Vanguard as a way of introducing your child to the concept of an investment plan.

It’s simple to choose which age-based option you want, as you have a choice between conservative, moderate and aggressive age-based options, and each are fairly intuitive. For example, a child aged three to four years in the conservative age-based option will have a growth portfolio which will include 50 percent stocks and 50 percent bonds.

On the other hand, a child of the same age in the aggressive age-based portfolio will have a growth portfolio of 100 percent stocks. This means that every investing plan is a bit different, allowing you to cut into student loan debt, invest on your child’s behalf and even pass some of this cash on to them in the future.

The Vanguard 529 Plan also offers 20 individual portfolios you can mix if you prefer to build your own.

It’s easy to see why the Vanguard 529 Plan is excellent: low costs, easy-to-choose savings options and great customer service can all pave the way for many future college attendees.

Best for Low Fees: New York’s 529 College Savings Plan

New York’s 529 College Savings Program doesn’t charge account maintenance fees and its underlying fees are low as well. For example, you pay only $1.50 in fees per year for every $1,000 that you invest (0.15 percent total annual asset-based fee).

Best of all for out-of-staters, the plan doesn’t charge any additional fees for non-New York residents. This pricing model makes it far simpler to use than a bank account, helps you avoid state income tax on a certain level and serves those with a low risk tolerance.

Best for Family Wealth Management: Wealthfront

Wealthfront's 529 plan brings college planning into the bigger picture of your family's financials. Along with helping you estimate future tuition expenses based on data from the Department of Education, Wealthfront suggests realistic savings goals each month.

By taking into consideration projected future costs, financial aid, and other personal financial goals, Wealthfront keeps you on track to meet your plan's goals. Also, they show how switching your monthly contribution would shift your plan's savings in the long term. You can adjust your investment choices at any time, and you can add to the plan when you add a family member. Think of this as your one-stop savings account for the kids.

Withdrawals made from Wealthfront's 529 plan are exempt from federal taxes and, depending on your state, you may be able to take advantage of certain state tax benefits. This is also a good account to use if you want to support your child as they go to graduate school or if you prefer to name them as an account beneficiary.

Best for Performance: The Ohio College Advantage Direct 529 Savings Plan

The Ohio CollegeAdvantage Direct 529 Savings Plan’s long-term performance has been excellent:

  • One-year: 18.11%
  • Three-year: 8.27%
  • Five-year: 10.83%
  • Ten-year: 6.84%

In addition, residents of Ohio can claim a large tax deduction on their education savings plan, or $2,000 of contributions. In addition, fees are low for this plan. For example, total expenses are 0.23% to 0.47%.

Best Fund Selection Options: my529

The my529, formerly the Utah Educational Savings Plan, allows account holders to choose among 14 different investment options, including four age-based options, eight static options, and two customized options. All utilize a different strategy:

  • The four age-based options automatically reallocate education savings plan funds from equities to fixed-income funds or FDIC-insured accounts as your beneficiary gets closer to college.
  • Eight static options do not change asset allocations as your beneficiary ages. The allocation you choose stays the same, unless you request a change.
  • Two customized options, age-based or static, can be designed to fit your needs.

Best for State Tax Deductions: Indiana CollegeChoice 529 Direct

Over 30 states, including the District of Columbia, offer full or partial state tax deductions for contributions to a 529 education savings plan.

Indiana wins the award for highest tax benefits. Indiana offers three 529 college savings programs: The CollegeChoice 529 Direct, the CollegeChoice Advisor, and the newest Indiana 529 plan is the CollegeChoice CD, which offers FDIC-insured savings options.

The Indiana 529 state tax benefits for residents include a 20 percent tax credit on contributions up to $5,000 which can be claimed against Indiana income tax. The maximum yearly credit is $1,000.

What's a 529 Plan?

By definition, a 529 plan is a state-sponsored, tax-advantaged investment account specifically designed to save for future education costs. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution. You can also use a 529 plan for an elementary or secondary public, private or religious school. This means you can now take federal tax-free withdrawals (up to $10,000) to pay for K-12 tuition.

You can choose from 2 types of 529 plans: prepaid tuition plans and college savings plans.

Prepaid Tuition Plans

Prepaid tuition plans allow college savers to purchase credits to prepay all or part of the cost of an in-state public college education or private college education. For example, the Private College 529 Plan offers a prepaid plan strictly for private colleges.

College Savings Plans

College savings plans allow college savers to save for qualified higher education expenses, including tuition, mandatory fees and room and board. They work much like an IRA; as a college saver, you can invest in mutual funds or similar investments of your choice.

Tax Benefits

Most, but not all, 529 plans offer tax benefits for college savers, both at the state and federal level. State tax benefits will vary from state to state.

For example, in Iowa, taxpayers who invest with College Savings Iowa can deduct up to $3,239 in contributions per beneficiary account from their adjusted gross income. If you’re married with two children in Iowa and both you and your spouse contribute to separate accounts, together you can deduct up to $12,956 (for 2017).

Again, every state is different and you’ll need to check the 529 plan available in your state.

If you’re curious about how the tax deductions will benefit you, check out Vanguard’s state tax deduction calculator. It’s really easy to use, and based on your planned contribution amount, marital status and yearly income, can quickly tabulate your total net tax savings for the year.

Ultimately, the most rewarding tax benefit of all is the fact that the earnings generated in a 529 plan are not subject to federal income taxes, nor are you subject to state or federal income taxes when the funds are withdrawn from the 529 plan.

More Benefits

In addition to the tax benefits, there are some other benefits college savers may not know about:

  • You can use another state’s plan if your state’s plan doesn’t meet your needs.
  • Anyone can contribute to a 529 plan, including grandparents, aunts, uncles, friends, etc.
  • College savers who live in Arizona, Kansas, Missouri, Montana or Pennsylvania offer a tax break no matter what state’s plan you invest in.
  • Again, you can save for tuition at an elementary or secondary public, private or religious school as well. Up to $10,000 in annual expenses may be accessed.
  • These accounts can support your kids while they serve apprenticeships
  • The plan account is easy to manage, and in the case of larger funds, is supported by investment professionals who might manage all the rest of the family’s finances

How to Choose a Plan

Most states offer a couple of different types of plans: one you can buy directly from the state and one you can buy through a broker. It’s best to buy the plan you can use directly. It’ll be much cheaper than paying fees to a broker.

How to Choose an Asset Mix

Traditionally, it’s easy for college savers to determine which blend of aggressive to conservative investments a beneficiary will require. Most states offer age-based portfolios (so they’re aggressive and flush with stocks when your child’s a baby and adjust to bonds and cash when he/she is closer to his/her first year of college.)

Consider All Your Options When Selecting a 529 Plan

One thing you don’t want to do with the money in a 529 plan is to use it for non-educational expenses. Say you need emergency cash or decide to use Junior’s college fund for a new RV instead. You’ll owe income tax and will incur a ten percent penalty on earnings (but not on contributions).

Also, your state’s tax deduction should not be your only consideration when deciding on a 529 plan for your beneficiary. Take fees, asset allocation, performance and even customer service into consideration when determining which 529 plan will work best for you.

Frequently Asked Questions


Is a 529 plan effective?


529 plans can be effective when saving for college, but they are not your only option. You may use a custodial account that allows you to save on behalf of your child, accept more contributions and grow the account faster.


Can you cover all your child’s college tuition with a 529 plan?


Generally, you may not raise enough money in a 529 plan to cover all your child’s college tuition, but you can get a good head start by opening one of these accounts.


When should parents open a 529 plan?


Parents can open a 529 account at any time, even if they have not had children yet.

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