529 college savings plans are the best way to save for an education. No other education savings vehicle lets you invest such large sums of money tax-free regardless of your household income. The only difficult choice is which state’s plan to use. Besides the plan(s) offered by your home state, we believe that many Americans need to consider the top 529 savings plans open to residents of any state.
Many Americans Are 529 "Free Agents"
Look outside your neighborhood before committing money to a 529 savings plan.
Using your home state's 529 savings plan might only make sense if the state tax incentives are sufficient. Twenty six U.S. states and DC offer residents a tax deduction or tax credit on their state returns if they contribute to an in-state 529 savings plan. However, the annual value of these incentives may be less than $100 or more than $1,000 depending upon state law and the amount contributed. If you live in one of these states, it makes sense to weigh the state tax savings benefit along with the plan's other features against the best out-of-state offerings.
States with Income Tax Incentives for In-State 529 Contributions
AL, CO, CT, DC, GA, ID, IL, IN, LA, MD, MA, MI, MS, NE,
NM, NY, ND, OH, OK, OR, RI, SC, UT, VT, VA, WV, WI
Finding the right 529 savings plan is easier if your state doesn't have an income tax, allows tax deductions or credits for contributions to any state's 529 plan, or doesn't provide any state tax benefits for 529 contributions. In these cases, you are left to choose among the best plans nationwide.
States with No Income Tax
AK, FL, NV, NH, SD, TN, TX, WA, WY
States with 529 Tax Deductions for Contributions to Any State’s Plan
AZ, AR, KS, ME, MN, MO, MT, PA
States with an Income Tax but No Deductions for 529 Contributions
CA, DE, HI, KY, ME, NJ, NC
Features of a Great 529 Savings Plan
Low cost. Investment flexibility. High maximum account balances.
That's it. Everything else is relatively unimportant or fairly uniform across plans.
There are three or four sources of expense with 529 savings plans. First, the state charges the investor fees for administering the plan. Second, the state typically hires a program manager (usually a mutual fund company or brokerage firm) to determine the plan's menu of investment funds. The investment funds themselves charge fees for managing their assets. And if you choose an advisor-sold plan, another layer of fees is paid to the investment advisor.
Fees are charged as a percentage of the assets in each specific investment. The total of all fee layers is disclosed in each plan's disclosure document as an asset-based expense ratio. Nominal enrollment or account maintenance fees may also be charged by some plans (though these are becoming less common).
The lowest cost 529 savings plans charge investors less than 0.20% of assets per year for a portfolio anywhere on the risk spectrum. Not surprisingly, the investment menus of such plans are comprised primarily of index funds.
Investment flexibility refers to the ability of the investor or their advisor to craft a portfolio that is appropriate for their risk tolerance and allows them to respond to changing investment opportunities.
All 529 savings plans have age-based investment options. Age-based portfolios are a way determine investment risk based on the prospective college student's current age. But this approach completely ignores the investor's risk tolerance. The best 529 plans offer different age-based portfolios for various levels of risk tolerance along with portfolios for desired levels of investment risk that don't vary with the child's age — these are often called static portfolios or risk-based portfolios (we prefer the latter term).
The very best 529 plans also have a menu of individual fund options that allow the investor or advisor to create a custom portfolio. Custom portfolios are the easiest way for most 529 investors to respond to changing financial markets — pre-determined age-based or risk-based portfolios rebalance periodically according to rules rather than potential market opportunities and risks. Most plans allow for two investment portfolio changes per year.
Each plan has a maximum account balance per beneficiary. The limits range from less than $250,000 to more than $500,000. Once the maximum account balance has been reached, no additional contributions are allowed. However, the account balance may continue to growth through investment earnings.
If a beneficiary needs funds for private education or an advanced degree, the contribution limits might become a factor in choosing the right plan. Most states evaluate their plan contribution limits every few years and the trend has been to raise them to keep pace with rising education costs.
Using the above criteria, we've identified the top five 529 savings plans that accept contributions from non-residents. We've chosen to evaluate direct-sold savings plans only. Advisor-sold 529 savings plans, which tend to be more expensive, have been excluded from the analysis. Investors with direct-sold plans are still able to receive help from a financial advisor (like us!) — the key difference is that the advice must be paid for outside of the plan itself.
The Fantastic Five
For the biggest account at potentially the lowest cost.
California's ScholarShare Savings Plan has the highest account balance limit in the country at $529,000, and investors with the most aggressive index fund portfolios can obtain fees as low as 0.10% of assets. Other index portfolios cost only 0.11% to 0.15% — actively managed portfolios may cost 0.50% or more.
TIAA is the program manager. The investment menu includes funds managed by TIAA, DFA, TCW, PIMCO, and T. Rowe Price (sorry about the acronym soup).
The plan offers six risk-based portfolios, ranging from a 100% fixed-income to a portfolio entirely invested in international stocks. Only one of these portfolios would qualify as balanced in our book — most skew heavily toward stocks or bonds of different flavors.
The ScholarShare Savings Plan also includes five individual fund options, including a guaranteed return investment. Investors can put together a fairly diversified portfolio with U.S. equity and bond index funds — but most other asset classes are missing from the individual fund menu. There is a reasonably priced socially-responsible investment fund among the choices.
Investors that want age-based portfolios can choose between a passive or active approach. There is no ability to vary the age-based portfolios by risk preference.
For the most easily customized portfolio at very-low expense.
Illinois' Bright Start Direct-Sold College Savings Plan has ultra-low costs if you stick to the index fund options, and its menu of individual index funds is comprehensive. Index portfolios cost only 0.12% to 0.13% of assets per year — options that include actively managed funds cost roughly 3x as much. The current account balance limit for each beneficiary is $450,000.
The Union Bank & Trust Company is the program manager. The investment menu includes funds managed by Vanguard, T. Rowe Price, DFA, Dodge & Cox, BlackRock, Baird Funds, Ariel Investments, Oppenheimer Funds, Dreyfus, Nuveen and PGIM investments.
Most investors can construct a well-diversified portfolio using the individual index fund options alone. Illinois' plan offers nine individual index funds from Vanguard. Other than smaller-capitalization stocks, there aren't any holes in the individual fund menu. The plan includes another 15 actively-managed fund options.
The plan offers three risk-based portfolios comprised of index funds and three risk-based portfolios that include a mix of index and active funds. The index equity portfolio is a balanced mix of domestic and international equity, the index balanced portfolio is a 50/50 mix of equity and fixed income and utilizes eight different asset classes, and the index fixed income portfolio is comprised mostly of shorter-term bonds and money market funds.
Investors may also choose among conservative, moderate, and aggressive age-based options that migrate from more aggressive to more conservative risk-based portfolios as the beneficiary approaches college.
For investors that already keep money at Fidelity.
Fidelity is the program manager for the Fidelity Arizona College Savings Plan, the Delaware College Investment Plan, Massachusetts' U.Fund College Investing Plan, and New Hampshire's UNIQUE College Investing Plan. The investment options are the same for all four plans. Diversified portfolios comprised of Fidelity index funds cost from 0.13% to 0.18% of assets per year.
The primary difference between the four plans is the maximum account balance set by each state: $476,000 for Arizona, $350,000 for Delaware, $400,000 for Massachusetts, and $500,000 for New Hampshire. Most out-of-state investors should simply consider New Hampshire's plan since its account size limit is greatest.
Most of the strategies use Fidelity's index and active funds. However, investors can choose a multi-firm age-based portfolio that includes funds from several companies.
Nearly all investors can create a well-diversified portfolio using the individual funds together with the risk-based portfolios.
The plans offer three risk-based portfolios comprised of Fidelity index funds and three risk-based portfolios that include active funds. The aggressive growth portfolio is a 100% U.S. and international stock portfolio, the moderate growth portfolio is roughly 70% equity and 30% fixed income, and the conservative income portfolio is 100% fixed income. The plans include six individual fund options, including an FDIC-insured alternative.
There are three age-based options available. Investors can choose a mix of Fidelity index funds, Fidelity active funds, or active funds from multiple firms. There is no ability to vary the age-based portfolios by risk preference.
For the simplicity of index-only investing and a flat ultra-low fee.
NY's 529 College Savings Program is notable for its flat ultra-low fees and high maximum account balance — investors are charged 0.13% of assets each year regardless of the investment options chosen. This is possible because the investment menu does not include any actively-managed funds. The current account balance limit for each beneficiary is $520,000.
The plan uses Ascensus Broker Dealer Services for record keeping and daily operations and Vanguard for investment management.
Nearly all investors should be able to cobble together a custom portfolio with an appropriate risk level if they combine individual funds with the risk-based portfolios.
Investors can choose from five risk-based portfolios, ranging from a 100% bond and money-market portfolio to a 100% stock fund portfolio. Only one of these portfolios would qualify as balanced in our book without adding some individual funds to the mix — most have 75% or more of either stocks or bonds with different flavors. NY's 529 College Savings Plan offers eight individual fund options.
Investors may also choose among conservative, moderate, and aggressive age-based options that migrate from more aggressive to more conservative portfolios as the beneficiary approaches college.
For set and forget risk-based portfolios.
Virginia's Invest529 plan has ultra-low costs if you stick to the index fund options and its risk-based portfolios are better diversified than most. Index portfolios will cost only 0.12% to 0.14% of assets — actively managed portfolios may cost 0.50% or more. The maximum account balance for each beneficiary is $500,000.
Virginia acts as its own program manager. The investment menu includes funds managed by Vanguard, Aberdeen, Blackstone, Capital Research and Management, DFA, Invesco, PGIM, Rothschild, Stone Harbor, Templeton, and UBS.
Nearly all investors can create a well-diversified portfolio using the individual funds together with the risk-based portfolios.
The plan offers three risk-based portfolios comprised of index funds and four risk-based portfolios that include a mix of index and active funds. The aggressive growth index portfolio is an 80%/20% stock/bond portfolio, the moderate growth portfolio is 60% equity and 40% fixed income, and the conservative income portfolio includes a 20%/80% stock/bond allocation. Notably, these portfolios are well-diversified across equity market capitalization, geography, and bond type.
The Invest529 plan includes five individual index fund options from Vanguard plus an FDIC-insured savings account option. The plan also includes a socially-responsible investment fund.
Only one age-based option is available, and it includes a mix of index and actively managed funds.
529 Plans Continue to Evolve
Each state’s 529 savings plans change over time in response to trends in the investment industry and competition for assets among the states. Index fund investments have become hugely popular — driving down asset-based fees. Many age-based portfolio options now shift their asset allocations more frequently but more smoothly over time. And socially-responsible investment fund options have started appearing. The best five plans today may not be the best five plans a few years from now. Luckily, you can rollover account balances from one state’s plan to another in most cases.
Our advice is to compare your in-state options with the “fantastic five”. Once you’ve chosen a plan, scan the landscape again every two or three years to see if a superior plan becomes available. For each account, choose the right portfolio for your risk tolerance, and review the account twice each year to see if investment changes are needed.