Updated for 2024. Morningstar is a great resource for research on 529 college savings plans, and they have recently updated their annual deep dive on 529 plans: The 2024 529 Savings Plan Landscape (e-mail required).
When choosing a 529 college savings plan, you can open a 529 plan from any state (not just your own). However, each state can vary widely in what they offer in terms of tax deductions and/or tax credits. So how to do you choose?
- No state tax? ? Just pick the best overall plan.
- No special tax benefits (deduction or credit)? ? Just pick the best overall plan.
- Home state offers tax parity? (the same tax benefits no matter which state’s plan you pick) ? Just pick the best overall plan.
- Home state requires you to contribute to your home state plan to get the tax perk? ? Technically, you should compare the annual tax savings against any potential perks from the best overall plan (lower annual expenses, superior investment options). In most cases, I have found that if a state cares enough to offers a state tax deduction or tax credit, and you are contributing an amount under or around the max limit (ex. under $200 a month), then the in-state plan is most likely good enough and you should stick with it. The main exception is if you plan on funding your plan with a large upfront contribution, where a lower expense ratio would really matter.
If you are in the last situation in which you have to do some math, this Morningstar article also runs the numbers for a theoretical couple filing jointly with a gross annual income of $100,000 that deposits $3,000 a year (or $250 a month) into one beneficiary’s 529 account. The chart is useful to provide a quick idea of your state’s tax benefits at a glance, but I would make sure to run the numbers for your income and your expected annual contribution. This Vanguard state deduction calculator tool may be helpful to double-check your calculations.
Finally, note that some states will also recapture any tax benefits if you perform an outbound 529 rollover, or otherwise do not conform with federal tax laws regarding 529 distributions.
Top plans quick recap. Here are Morningstar’s top Gold and Silver-rated plans as of Summer 2024.
I personally invest in the Utah My529 Plan for my children due to their DIY glide path feature and DFA fund access, but my second choice would be the Vanguard Nevada 529 Plan if you want something that is more “set-and-forget”, especially if you already have other accounts at Vanguard. I wouldn’t spend too much time splitting hairs – taking action and starting an automatic savings plan is the most critical decision.
Opening a plan and making any contribution also starts the 10-year clock on potential future 529-to-Roth IRA rollovers.
