The cost of a college education is a scary proposition for all but the most affluent of parents. But contributing over time to a 529 savings plans can go a long way toward ensuring your children aren't loaded with debt by the time they graduate.

As long as students withdraw funds for qualified education expenses—and that covers everything from tuition and fees to books and computers—you don't have to pay any tax whatsoever on any gains that have accumulated in the account. And, importantly, putting aside money in a 529 won't make a substantial difference when it comes to your financial aid package. If the account is owned by a parent or a dependent child, less than 6% of the assets count toward your expected family contribution, a key metric used in calculating a student's reward.

Key Takeaways

• Most states offer a tax break for residents who use their 529 plan, but that shouldn't be the only factor when deciding on a college savings program.

• When comparing 529 plans, the expense ratio of the underlying investment funds is one of the most important criteria. Some plans also impose annual maintenance fees and other charges.

• In addition to expenses, you'll want to look at the quality of investment choices and range of portfolio options. Most states offer age-based portfolios that gradually become more conservative as the child ages.

529 Plans from State to State

When choosing a 529, your own state's plan is a great place to start, since many offer income tax benefits to residents when they make contributions. But it's worth keeping in mind that most plans accept investors from anywhere in the U.S.—and you can use money from any college savings program to pay for college, even if the institution is in another state.

What's more, seven "parity" states offer income tax breaks for contributions, regardless of which plan you use: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania. If you call one of these states home, you have even more incentive to shop around, since you'll get a tax deduction or credit anyway.

For parents and grandparents who are considering an out-of-state option, we compiled a list of the five best 529 plans from around the country.

Updates to 529 Plan Rules

As mentioned above, there are certain instances in which you can withdraw funds from a 529 plan without incurring any additional fees or penalties.

The Tax Cuts and Jobs Act (TCJA) of 2017 expanded some of the rules surrounding these types of plans. Under the law, plan holders can withdraw as much as $10,000 per beneficiary to pay annual tuition expenses for K to 12 schools including public, private, and religious institutions. Plan holders can also roll over money from a 529 plan to an ABLE account for the same beneficiary. ABLE accounts are aimed at individuals who are significantly disabled before the age of 26.

The passing of the Setting Every Community Up for Retirement Enhancement Act (SECURE)—signed in to law by President Donald Trump in December 2019—also expanded some of the rules surrounding 529 plans. According to Section 302 of the act, plan holders can withdraw a lifetime maximum of $10.000 to put toward qualified student debt of the beneficiary. It can also be used to pay certain expenses related to apprenticeship programs such as tuition, fees, books, and equipment. These withdrawals can be made both tax- and penalty-free.

How We Picked the Best Plans

You can buy college savings plans in one of two ways: By selecting a "direct-sold" plan on your own or by opening an account through a financial advisor.

While the latter might seem like a good option if you're a novice investor, you'll likely pay more in the process. Advisor-sold plans typically have higher fees, and there's always a risk that less scrupulous professionals will steer you toward investments that pay them a fatter commission.

For that reason, our list focuses on direct-sold plans, of which virtually every state has at least one—Wyoming is the only exception. We favor plans with low expenses—both maintenance fees and management fees for the underlying funds—as well as a strong record of performance. We also weighed other factors, such as the number of investment options that the plan offers.

Fees and Expenses

Management fees are key because these expenses chip away at your balance each year. By contrast, state tax breaks generally only offer you a benefit for the year in which you contribute those funds. The earlier you start investing, the more important a small difference in annual fees becomes in choosing a plan.

Fund expenses are especially important when comparing multiple 529 plans that invest in passive instruments such as index funds. Because the underlying stocks or bonds are largely the same between plans, the expense ratio becomes perhaps the biggest point of differentiation.

Returns

In choosing our top 529 plans, we also looked at investment returns over one-year and five-year time spans, using data from the website savingforcollege.com. While past results don't guarantee future performance, a consistent pattern of beating one's peers indicates that the plan manager is choosing an effective menu of investments.

Some states also offer prepaid tuition plans, which don't offer the same flexibility. Depending on where you invest, the state may allow you to transfer the contract to a school in another part of the country—or to a private institution. But you may not get the full value of your contract back in the process.

Our Top Picks

Following are five high-performing 529 plans in five different states.

Bright Start (Illinois)

In terms of sheer selection, Illinois's Bright Start college savings plan is a tough one to beat. The program offers investment options from 11—yes, 11—different fund companies, including respected names like Vanguard and T. Rowe Price. Account owners can choose between three basic investment types:

  • Age-based portfolios: The portfolio gradually adjusts from more aggressive choices (i.e. a stock-heavy mix) when the beneficiary is younger to a more conservative (i.e. bond and money market-heavy) mix when they approach college age.
  • Target portfolios: The plan offers six different target portfolios, which maintain a consistent mix of asset classes over time. You can choose more equity-focused portfolios or those that lean toward safer securities.
  • Individual portfolios: Owners can tailor individual fund portfolios based on their own risk-reward profile.

Choice isn't the only thing to like about this Illinois 529 plan—its portfolios, for the most part, have been solid performers. Savingforcollege.com gives Bright Start a 4.5 overall rating on its "5-Cap" rating system, putting it toward the top of all direct-sold plans.

One of the reasons for its strong performance may be the program's highly competitive expense schedule. Depending on the portfolio you choose, management fees range from 0.17% to 0.65%. The program has no yearly maintenance fee, and you only need a $25 initial contribution to get started.

CollegeAdvantage (Ohio)

There are a lot of reasons to like Ohio's CollegeAdvantage 529 plan—a history of generating above-average returns is certainly one of them. According to Savingforcollege.com's quarterly performance review, the program is tops in the nation for five- and 10-year returns. It comes in a laudable second place for three-year performance.

There's no shortage of investment choices here, either. As with Illinois's Bright Start plan, you can choose an age-based portfolio that becomes more conservative over time or risk-based portfolios that match your desired level of risk and reward but do not change the overall asset mix as your child or grandchild gets older. You can also customize your basket of investments by choosing your own mix of stock and bond funds. The plans include funds from Vanguard and Dimensional Fund Advisors, as well as FDIC-insured certificates of deposit (CDs) and bank accounts.

From a fee standpoint, Ohio's plan is one of the best around. Age-based options range between 0.19% and 0.32% annually, well below the national average. And risk-based and individual options are all under 0.54%.

No doubt, Ohioans have a strong incentive to sign up, with state tax breaks of up to $4,000 per year. But with a stellar track record, numerous investment options, and low fees, people outside the Buckeye state will want to take notice as well.

Lowest Fees for a Typical Account
State Plan Name Expense Ratio
California ScholarShare 529 College Savings Plan 0.09%
Massachusetts U.Fund College Investing Plan 0.10%
Arizona Fidelity Arizona College Savings Plan 0.11%
Delaware Delaware College Investment Plan 0.11%
New Hampshire UNIQUE College Investing Plan 0.11%
Annual expense ratio for a medium equity, age-based portfolio for a child ages 0-6.

Invest529 (Virginia)

Virginia's direct-sold plan, Invest529, offers a compelling mix of features such as low costs, ample portfolio options, and a strong track record. Citing its "diligent state oversight," the investment research firm Morningstar gave the plan its top Gold rating in 2019.

Age-based configurations charge between 0.15% and 0.69% in management fees, with an individual portfolio costing 0.10% to 0.63%. There's no application fee when you open an account online and no annual maintenance fee that will eat into your balance. You'll find age-based and static portfolio options, as well as an FDIC-insured savings account for more risk-averse parents or those whose children are only a couple of years away from college.

The underlying funds include selections from giants like Vanguard and Templeton as well as some lesser-known companies like Rothschild Asset Management and Stone Harbor Investment Partners. By and large, they've been excellent performers—Invest529 gets a four-star rating out of five for performance from Savingforcollege.com.

NY's 529 College Savings Program (New York)

Unlike some of the other top 529 programs on our list, New York's direct-sold plan offers investment options from just one fund company. Fortunately, it chose one that's pretty much synonymous with low fees: Vanguard.

While New York's 529 College Savings Program may not have the most investment choices around, there should be plenty here for all but the most finicky of investors. You can select from one of three age-based options or you can design your own portfolio based on a mix of funds that meet your investment goals and risk tolerance.

Those individual portfolios don't automatically shift your asset mix over the years like age-based ones, so they require a bit of maintenance. New York's plan lets you move funds between portfolios up to twice a year, in case you want to do some fine-tuning.

As you'd expect with Vanguard products, the fees in the plan are among the best in the country at just 0.13%, regardless of whether you use age-based or custom portfolios. In terms of performance, it's near the head of the class, with a five-star rating from Savingforcollege.com.

Best 5-Year Performance
State Plan Name Performance Score from Savingforcollege.com
Ohio CollegeAdvantage, Ohio's 529 Plan 21.85
New York NY's 529 College Savings Program—Direct Plan 27.37
South Carolina Future Scholar 529 College Savings Plan 27.46
California ScholarShare 529 College Savings Plan 29.86
Delaware Delaware College Investment Plan 30.39

Source: Savingforcollege.com performance data from a sample of portfolios, as of Q3 2019.

my529 (Utah)

Utah's my529 program has had quite a run. The college savings plan snagged its ninth-straight Gold rating from Morningstar, evidence of the state's prudent management.

With 13 different investment possibilities, there's an option for virtually anyone. You'll find four age-based portfolios, seven "static" options where the asset mix doesn't change over time, and two customized portfolios. The underlying funds are managed by some well-regarded companies, including Vanguard and the bond fund giant PIMCO.

With the age-based options, account owners can choose their level of risk and potential reward. The "aggressive global" portfolio invests entirely in U.S. and foreign stocks at the start and gradually increases its exposure to the bond market. At the other end of the spectrum is the "conservative" option, which starts off with only 60% of its assets in equities.

As you'd expect from a leading 529 plan, its fees are definitely reasonable, ranging from 0.13% to 0.57%. Plus, there's no annual maintenance fee or account origination fee to worry about.

There are some higher achievers on the list when it comes to investment returns; Savingforcollege.com gives it a 3.5 out of 5 possibles stars for performance. However, given its abundance of choice and its low costs, Utah's plan is very much worthy of consideration from folks in other states.

List of 529 Plans by State

Direct-Sold 529 Plans by State
State Plan Name Expense Ratio
Alabama CollegeCounts 529 0.27% - 0.88%
Alaska The University of Alaska Savings Plan 0.28% - 0.70%
Alaska T. Rowe Price College Savings Plan 0.35% - 0.70%
Arizona College Savings Bank Plan N/A
Arizona Fidelity Arizona College Savings Plan 0.05% - 0.99%
Arizona Ivy InvestEd 529 Plan 0.51% - 1.37%
Arkansas The GIFT College Investing Plan 0.39% - 0.53%
California ScholarShare 529 College Savings Plan 0.00% - 0.57%
Colorado CollegeInvest Direct Portfolio College Savings Plan 0.34%
Colorado CollegeInvest Stable Value Plus College Savings Plan 0.71%
Colorado CollegeInvest Smart Choice College Savings Plan 0.34%
Connecticut Connecticut Higher Education Trust (CHET) 0.00% - 1.14%
Delaware Delaware College Investment Plan 0.05% - 0.99%
District of Columbia DC College Savings Plan 0.15% - 0.74%
Florida Florida 529 Savings Plan 0.00% - 0.75%
Georgia Georgia Path2College 529 Plan 0.00% - 0.32%
Hawaii HI529: Hawaii's College Savings Program 0.58% - 0.66%
Idaho IDeal - Idaho College Savings Program 0.34% - 0.49%
Illinois Bright Start College Savings Program - Direct 0.17% - 0.65%
Indiana CollegeChoice 529 Direct Savings Plan 0.18% - 0.82%
Indiana CollegeChoice CD 529 Savings Plan N/A
Iowa College Savings Iowa 0.20%
Kansas Learning Quest 0.09% - 0.81%
Kansas Schwab 529 College Savings Plan 0.25% - 1.00%
Kentucky KY Saves 529 0.00% - 0.85%
Louisiana START Saving Program 0.00% - 1.75%
Maine NextGen 529 0.00% - 0.53%
Maryland Maryland 529 College Investment Plan 0.26% - 0.70%
Massachusetts U.Fund College Investing Plan 0.05% - 0.99%
Michigan Michigan Education Savings Program 0.00% - 0.24%
Minnesota Minnesota College Savings Plan 0.00% - 0.31%
Mississippi Mississippi Affordable College Savings 0.00% - 0.73%
Missouri MOST - Missouri's 529 College Savings Plan 0.23% - 0.57%
Montana Achieve Montana 0.47% - 0.83%
Montana Montana Family Education Savings Program - Bank Plan N/A
Nebraska NEST 529 College Savings Plan 0.20% - 1.54% (Class A shares)
Nebraska TD Ameritrade 529 College Savings Plan 0.48% - 1.45%
Nevada SSgA Upromise 529 Plan 0.29% - 0.89%
Nevada Vanguard 529 College Savings Plan 0.15% - 0.44%
Nevada USAA 529 College Savings Plan 0.52% - 1.08%
New Hampshire UNIQUE College Investing Plan 0.05% - 0.99%
New Jersey NJBEST 529 College Savings Plan 0.09% - 0.91%
New Mexico The Education Plan 0.29% - 0.71%
New York NY's 529 College Savings Program - Direct Plan 0.13%
North Carolina College Foundation of North Carolina NC 529 Plan 0.25% - 0.38%
North Dakota College SAVE 529 Plan 0.55% - 0.85%
Ohio CollegeAdvantage, Ohio's 529 Plan 0.00% - 0.54%
Oklahoma Oklahoma College Savings Plan 0.00% - 0.78%
Oregon Oregon College Savings Plan 0.00% - 0.70%
Pennsylvania Pennsylvania 529 Investment Plan 0.23% - 0.33%
Rhode Island CollegeBound Saver Program 0.04% - 0.60%
South Carolina Future Scholar 529 College Savings Plan 0.00% - 0.25%
South Dakota CollegeAccess 529 0.43% - 0.88%
Tennessee TNStars College Savings 529 Program 0.00% - 0.35%
Texas Texas College Savings Plan 0.57% - 0.98%
Utah my529 0.13% - 0.57%
Vermont Vermont Higher Education Investment Plan 0.00% - 0.39%
Virginia Invest529 0.10% - 0.69%
Washington DreamAhead College Investment Plan 0.28% - 0.40%
West Virginia SMART529 Select 0.12% - 0.22%
Wisconsin Edvest 0.00% - 0.41%
Wyoming (does not operate a 529 plan) N/A
The expense ratio denotes the range of annual expenses for underlying funds in the plan.

Source: Vanguard

The Bottom Line

While there are certainly advantages to investing in your own state's 529 plan—especially if yours offers an income tax break—it's not the only place you can put your son's or daughter's college money. You can use 529 funds to pay for college anywhere in the union, and if another state offers better plan features or substantially lower fees, you might want to do some comparison shopping.