Maximize Your Education Savings: How to Choose the Best 529 Plan

In our two previous posts on 529 College Savings Plans, we explored (1) how to begin saving for college with these plans and (2) the detailed review of each state's tax benefits. Now, we turn our focus to choosing the best 529 College Savings Plan by examining the crucial aspects of costs and performance. This deeper dive will help you select the most effective 529 plan to support your family’s educational financing goals.

What?

If your state offers generous tax advantages for using its 529 plan, it’s beneficial to enroll in your state’s 529 plan. However, for residents of states like California, Hawaii, Kentucky, or North Carolina, which do not offer tax deductions, it might be wise to consider plans from other states that offer low fees, good processes/oversight, and strong performance to maximize your savings potential.

So What?

To aid your decision, we consider Morningstar's Medalist ratings, which capture some combination of the following attractive features: a well-researched asset-allocation approach, a robust process for selecting and monitoring underlying investments, a well-resourced and experienced investment team, stable and engaged oversight from the state, and low fees. The table below shows the Medalist ratings and the state tax deduction availability.

State	Morningstar Medalist Rating	State Tax Deduction for 529 Contributions	Source
Alabama		Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.collegecounts529.com/
Alaska	Silver	No state income tax	https://www.alaska529plan.com/
Arizona	Silver	Up to $2,000 deduction for single filers, up to $4,000 for joint filers	https://az529.gov/
Arkansas		Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://brighterfuturedirect529.com/
California		No state tax deduction allowed	https://www.scholarshare529.com/
Colorado		100% of contribution amount deductible	https://www.collegeinvest.org/529-savings-plans/
Connecticut		Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.aboutchet.com/
Delaware	Silver	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.fidelity.com/529-plans/Delaware
District of Columbia		Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.dccollegesavings.com/
Florida		No state income tax	https://www.myfloridaprepaid.com/savings-plan/
Georgia	Silver	Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.path2college529.com/why/benefits
Hawaii		No state tax deduction allowed	https://www.hi529.com/
Idaho		Up to $6,000 deduction for single filers, up to $12,000 for joint filers	https://www.idsaves.org/
Illinois	Silver	Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://brightstart.com/
Indiana		20% tax credit on contributions up to $5,000	https://www.collegechoicedirect.com/
Iowa		Deductions up to $4,028 for each beneficiary	https://www.collegesavingsiowa.com/
Kansas		Up to $3,000 deduction for single filers, up to $6,000 for joint filers	https://www.learningquest.com/home.html
Kentucky		No state tax deduction allowed	https://www.kysaves.com/
Louisiana		Up to $2,400 deduction for single filers, up to $4,800 for joint filers	https://www.startsaving.la.gov/
Maine		Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.nextgenforme.com/
Maryland	Silver	Up to $2,500 deduction for single filers, up to $5,000 for joint filers	https://maryland529.com/
Massachusetts	Silver	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.mefa.org/save/u-fund-college-investing-plan
Michigan	Silver	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.misaves.com/learn/how-does-a-529-plan-work
Minnesota	Silver	Up to $1,500 deduction for single filers, up to $3,000 for joint filers	https://www.mnsaves.org/
Mississippi		Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://treasury.ms.gov/for-citizens/college-savings-mississippi/
Missouri		Up to $8,000 deduction for single filers, up to $16,000 for joint filers	https://www.missourimost.org/home.html
Montana		Up to $3,000 deduction for single filers, up to $6,000 for joint filers	https://achievemontana.com/
Nebraska		Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://nest529advisor.com/
Nevada	Silver	No state income tax	https://futurepath529.com/home/why-529.html
New Hampshire		No state income tax	https://www.nh.gov/treasury/college-savings/unique.htm
New Jersey		Up to $10,000 deduction so long as the gross income is $200,000 or less	https://www.njbest.com/
New Mexico		100% of contribution amount deductible	https://www.theeducationplan.com/
New York	Silver	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.nysaves.org/home.html
North Carolina		No state tax deduction allowed	https://www.cfnc.org/save-for-college/
North Dakota		Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.collegesave4u.com/
Ohio	Silver	Up to $4,000 deduction per beneficiary, per year	https://www.collegeadvantage.com/
Oklahoma		Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://www.oklahoma529.com/
Oregon		$170/$340 tax credit for single/joint filers with annual income < $30k, different credit amounts for different income buckets	https://www.oregoncollegesavings.com/
Pennsylvania	Gold	Up to $18,000 deduction for single filers, up to $36,000 for joint filers	https://www.pa529.com/
Rhode Island		Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.collegeboundsaver.com/home.html
South Carolina		100% of contribution amount deductible	https://futurescholar.com/about-future-scholar/why-future-scholar/
South Dakota		No state income tax	https://www.collegeaccess529.com/?type=none
Tennessee		No state income tax	https://tnstars.treasury.tn.gov/
Texas		No state income tax	https://www.texascollegesavings.com/
Utah	Gold	Up to $2,410/$4,820 deduction for single/joint filers, or 4.65% tax credit on contributions of $2,410/$4,820 for single/joint filers	https://my529.org/
Vermont		10% tax credit for contributions up to $2,500/$5,000 for single/joint filers	https://www.vheip.org/
Virginia	Silver	Up to $4,000 deduction	https://www.virginia529.com/
Washington		No state income tax	https://529.wa.gov/
West Virginia		100% of contribution amount deductible	https://www.smart529.com/home.html
Wisconsin	Silver	Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.edvest.com/
Wyoming		No state income tax	No 529 Plan

Now What?

• Evaluate Tax Advantages: If your state offers generous tax deductions for 529 contributions, using your state's plan can significantly boost your savings through these tax benefits.

• Consider Other States' Plans: For residents of states without tax benefits or with underperforming plans, investigate plans from other states that might offer better returns and lower fees.

• Look for High Ratings and Low Fees: Select plans that are highly rated by sources like Morningstar and that maintain low operational costs to maximize your investment growth.

• Consult a Financial Advisor: Before making a decision, it’s advisable to speak with a financial professional who can help tailor a 529 plan choice to your specific financial situation and goals.

Concluding Remarks

Choosing the right 529 plan is a pivotal decision that can impact your financial preparedness for future educational expenses. By understanding both the cost implications and the performance of available plans, you can make a more informed decision that aligns with your financial goals and provides the best possible educational opportunities for your beneficiary. Remember, the best plan for you will balance performance, cost, and tax benefits in a way that maximizes your savings and supports your long-term educational financing strategy. Always consult with a financial advisor to tailor your choice to your unique situation.