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 | |
Alaska | Silver | No state income tax | |
Arizona | Silver | Up to $2,000 deduction for single filers, up to $4,000 for joint filers | |
Arkansas |
| Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
California |
| No state tax deduction allowed | |
Colorado |
| 100% of contribution amount deductible | |
Connecticut |
| Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
Delaware | Silver | Up to $1,000 deduction for single filers, up to $2,000 for joint filers | |
District of Columbia |
| Up to $4,000 deduction for single filers, up to $8,000 for joint filers | |
Florida |
| No state income tax | |
Georgia | Silver | Up to $4,000 deduction for single filers, up to $8,000 for joint filers | |
Hawaii |
| No state tax deduction allowed | |
Idaho |
| Up to $6,000 deduction for single filers, up to $12,000 for joint filers | |
Illinois | Silver | Up to $10,000 deduction for single filers, up to $20,000 for joint filers | |
Indiana |
| 20% tax credit on contributions up to $5,000 | |
Iowa |
| Deductions up to $4,028 for each beneficiary | |
Kansas |
| Up to $3,000 deduction for single filers, up to $6,000 for joint filers | |
Kentucky |
| No state tax deduction allowed | |
Louisiana |
| Up to $2,400 deduction for single filers, up to $4,800 for joint filers | |
Maine |
| Up to $1,000 deduction for single filers, up to $2,000 for joint filers | |
Maryland | Silver | Up to $2,500 deduction for single filers, up to $5,000 for joint filers | |
Massachusetts | Silver | Up to $1,000 deduction for single filers, up to $2,000 for joint filers | |
Michigan | Silver | Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
Minnesota | Silver | Up to $1,500 deduction for single filers, up to $3,000 for joint filers | |
Mississippi |
| Up to $10,000 deduction for single filers, up to $20,000 for joint filers | |
Missouri |
| Up to $8,000 deduction for single filers, up to $16,000 for joint filers | |
Montana |
| Up to $3,000 deduction for single filers, up to $6,000 for joint filers | |
Nebraska |
| Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
Nevada | Silver | No state income tax | |
New Hampshire |
| No state income tax | |
New Jersey |
| Up to $10,000 deduction so long as the gross income is $200,000 or less | |
New Mexico |
| 100% of contribution amount deductible | |
New York | Silver | Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
North Carolina |
| No state tax deduction allowed | |
North Dakota |
| Up to $5,000 deduction for single filers, up to $10,000 for joint filers | |
Ohio | Silver | Up to $4,000 deduction per beneficiary, per year | |
Oklahoma |
| Up to $10,000 deduction for single filers, up to $20,000 for joint filers | |
Oregon |
| $170/$340 tax credit for single/joint filers with annual income < $30k, different credit amounts for different income buckets | |
Pennsylvania | Gold | Up to $18,000 deduction for single filers, up to $36,000 for joint filers | |
Rhode Island |
| Up to $1,000 deduction for single filers, up to $2,000 for joint filers | |
South Carolina |
| 100% of contribution amount deductible | |
South Dakota |
| No state income tax | |
Tennessee |
| No state income tax | |
Texas |
| No state income tax | |
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 | |
Vermont |
| 10% tax credit for contributions up to $2,500/$5,000 for single/joint filers | |
Virginia | Silver | Up to $4,000 deduction | |
Washington |
| No state income tax | |
West Virginia |
| 100% of contribution amount deductible | |
Wisconsin | Silver | Up to $4,000 deduction for single filers, up to $8,000 for joint filers | |
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.
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