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Education savingsLong-time readers know I’m a big fan of using state-run 529 college plans to save for higher education expenses. (Remember the mantra: if you can save for college, you should!) Money in these plans grows tax-free when used for qualified college costs and doesn’t have much impact on financial aid (which is going to be mostly loans, anyway).

But the plans aren’t created equal–in fact, they’re so diverse it’s kind of daunting to track and compare them. Investment research firm Morningstar does just that, though, and every year creates a list of the best (and worst) plans. That list gives us 529 investors a chance to compare our plans against a gold standard and consider whether we need a change.

I’ve changed plans once, from California’s then-middling plan to Nevada’s top-rated one, and was surprised by how easy it was. (We still have some money in California’s plan, which is now higher in Morningstar’s ratings.) Some people are tied to their state’s plan by tax breaks or other incentives, but many aren’t. If you’re not happy with your plan, it’s time to consider a change.

You can read more about it in my Reuters column this week, “Is it time to switch 529 college savings plans?

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3 Comments

1

http://www.savingforcollege.com is also an excellent source for 529 plan information.

2

Do you recommend 529’s over an ESA? Why or why not?

3

You can only put $2,000 a year in an ESA, while contribution limits for 529s are in the six-figure range. Most states offer incentives for investing in 529s (California being one of the exceptions). ESAs do give you more flexibility with your investments, since you can open one at just about any brokerage. They’re a good savings vehicle for private elementary and high school, though. 529s are only for college.