Scholars Edge 529 Investment Options

Date:

Nextgen 529 Client Direct Series

529 Plan vs. Brokerage Account: Which is the Best Option?

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Merrill Lynch, Pierce, Fenner & Smith Incorporated

Residency Requirement: None

Minimum Contributions: $25 initially and subsequently some exceptions apply

Maximum Contributions: $500,000

Age-Based Investment Options: Two categories with 10 portfolios each

Static Investment Options: Eight portfolios

State Taxation: All 529 plans exempt from Maine state income tax

None

State Farm 529 Savings Plan

Plan Type: Education savings plan

Direct- or Advisor-Sold: Advisor-sold

Plan Manager: First National Bank of Omaha

Residency Requirement: None

Minimum Contributions: $250 initially, $50 subsequent

Maximum Contributions: $400,000

Age-Based Investment Options: Nine portfolios

Static Investment Options: Seven portfolios

State Taxation: All 529 plans exempt from Nebraska state tax

Deduction of up to $10,000 for contributions to a Nebraska 529 plan

Total Fees: 0.2% – 0.61% $25 fee for accounts with less than $20,000

Mississippi Prepaid Affordable College Tuition Program

Plan Type: Prepaid tuition plan

Direct- or Advisor-Sold: Direct-sold

Residency Requirement: Reserved for Mississippi residents

Minimum Contributions: Varies by plan

Maximum Contributions: N/A

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Ascensus College Savings

Residency Requirement: None

Minimum Contributions: $25 generally $15 for those with automatic payroll deductions

Maximum Contributions: $396,000

Age-Based Investment Options: Seven portfolios

Static Investment Options: Eight portfolios

State Taxation: All 529 plans exempt from Montana state income tax

Deduction of up to $3,000 for contributions to any 529 plan

Total Fees: 0.4% – 0.59% $25 annual fee, with exceptions

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Nys 529 College Savings Program New York

While New Yorks 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.

  • Fees of just 0.12% for all portfolio types

  • Terrific track record when it comes to investment performance

  • Generous tax breaks for New York residents

  • Only offers investment products from one mutual fund company

Those individual portfolios dont automatically shift your asset mix over the years like age-based ones, so they require a bit of maintenance. New Yorks plan lets you move funds between portfolios up to twice a year, in case you want to do some fine-tuning.

As youd expect with a Vanguard product, the fees in the plan are among the best in the country at just 0.12%, regardless of whether you use age-based or custom portfolios. In terms of performance, its near the head of the class, with a 4.5-cap rating from Savingforcollege.com.

Collegecounts 529 Fund Advisor Plan

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Plan Type: Education savings plan

Direct- or Advisor-Sold: Advisor-sold

Plan Manager: Union Bank & Trust Company â UBT 529 Services

Residency Requirement: None

Maximum Contributions: $475,000 per beneficiary

Age-Based Investment Options: Three categories with nine portfolios per category

Static Investment Options: Six multi-fund and 24 individual-fund portfolios

State Taxation: Only Alabama plans are exempt from state income tax.

Deduction of up to $5,000 per person for contributions to an Alabama plan

Total Fees: 0.21% â 1.73% $12 annual fee for non-Alabama residents

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John Hancock Freedom 529

Plan Type: Education savings plan

Direct- or Advisor-Sold: Advisor-sold

Plan Manager: T. Rowe Price Associates, Inc.

Residency Requirement: None

Minimum Contributions: $250 per portfolio initially, $50 per portfolio subsequently

Maximum Contributions: $475,000

Age-Based Investment Options: Six portfolios ranging from 20% equity to 80% equity

Static Investment Options: 16 portfolios

State Taxation: None, as Alaska has no income tax for individuals

None, for the above reason

Total Fees: 0.64% – 2.23% $15 annual fee, with exceptions

How Does A 529 Plan Work

A 529 plan works similarly to a retirement plan. Youll set aside money on a regular basis and invest it according to your risk tolerance, or your childs age if you choose an age-based portfolio.

Money saved in a 529 plan grows tax-free and wont be taxed upon withdrawal as long as you use it for qualified education expenses. Eligible expenses include college tuition, room and board, textbooks, computers and software for students attending half-time or more, and up to $10,000 in K-12 private school tuition. Individual states run their own 529 plans, but you can choose to participate in any states plan. You may get a tax credit or deduction for using your home states plan, so it makes sense to compare various accounts benefits.

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Future Scholar 529 College Savings Plan

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Columbia Management Investment Advisors, LLC

Residency Requirement: Beneficiary or owner must be a South Carolina resident or state employee to enroll

Minimum Contributions: None

Age-Based Investment Options: Three categories with nine portfolios each

Static Investment Options: 17 options

State Taxation: All 529 plans exempt from South Carolina income tax

Deduct all contributions to South Carolina 529 plans

Total Fees: 0% – 0.25%

Prepaid Tuition Vs 529 Plans

How To Use A 529 Plan If Your Child DOESN’T Go To College

There are two types of 529 plans, each of which offers different benefits and risks.

529 Savings Plans

These plans let you invest money in vehicles such as mutual funds or exchange-traded funds . If you use the money for qualified educational expenses, youll pay no taxes on your earnings. In addition, some states offer added tax benefits, such as allowing savers to deduct 529 contributions on their taxes. Because of the variety of state plans available, shop around and see which benefits you most.

Prepaid Tuition Plans

These types of plans allow you to purchase tuition credits at participating colleges at todays prices, and the plans beneficiary can use those credits later when they attend the school. These plans have more restrictions and are less common than 529 savings plans.

Prepaid plans can typically only be used for tuitionnot room and board or other costs. They are also more likely to have state residency requirements, and the beneficiary must attend a participating school to get the full benefit of these plans.

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T Rowe Price College Savings Plan

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: T. Rowe Price Associates, Inc.

Residency Requirement: None

Minimum Contributions: $250 initially, $50 for subsequent contributions

Maximum Contributions: $475,000

Age-Based Investment Options: Eight portfolios ranging from 20% equity to 80% equity

Static Investment Options: Five portfolios University of Alaska portfolio not available

State Taxation: None, as Alaska has no income tax for individuals

None, for the above reason

Total Fees: 0.35% â 0.69%

North Dakota 529 Plans

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Ascensus College Savings

Residency Requirement: None

Minimum Contributions: $25 initially and subsequently $12.50 for automatic payroll deposits

Maximum Contributions: $269,000

Age-Based Investment Options: Three categories with five options each

Static Investment Options: Six portfolios

State Taxation: All 529 plans exempt from North Dakota state income tax

Deduction of up to $5,000 for contributions to a North Dakota plan

Total Fees: 0.5% $20 annual fee for non-North Dakota residents

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New Yorks 529 Advisor

Plan Type: Education savings plan

Direct- or Advisor-Sold: Advisor-sold

Plan Manager: Ascensus Broker Dealer Services

Residency Requirement: None

Minimum Contributions: $1,000 initially $25 subsequently

Maximum Contributions: $520,000

Age-Based Investment Options: Nine portfolios

Static Investment Options: 22 portfolios

State Taxation: All 529 plans exempt from New York state income tax

Deduction for account owners of up to $5,000 for contributions to a New York plan

Total Fees: 0.33% – 2.05% $25 annual fee for balances of less than $25,000

What Are The Tax Benefits Of 529 Plans

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When used for qualified expensesa category that includes tuition, certain room-and-board fees, required textbooks, and computersstudents can withdraw money from a 529 plan tax free.

In addition, some states offer income tax deductions for residents who contribute to their plan. A few parity states extend those tax benefits even if you pick a 529 plan from another state.

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How To Choose A 529 Plan

When it comes time to choose the best 529 plan for your family, look at whats available within your home state first. Many plans offer special incentives such as tax breaks for state residents, so you may find a better deal by starting your search at home.

Once youve noted the details of your home states plan, compare it to other states offerings. As you review each 529 plan, pay attention to the following factors.

Fidelity Arizona College Savings Plan

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: NexBank â College Savings Bank

Residency Requirement: None

Minimum Contributions: No minimum to open a plan automatic investments require at least $15 each month or $45 each quarter

Maximum Contributions: $505,000

Age-Based Investment Options: Three portfolios

Static Investment Options: 12 portfolios

State Taxation: All qualified distributions are exempt from Arizona state income tax.

Deduction of up to $2,000 per person for contributions to any 529 plan

Total Fees: 0.11% – 0.99%

Plan Type: Education savings plan

Direct- or Advisor-Sold: Advisor-sold

Plan Manager: Ivy Distributors, Inc.

Residency Requirement: None

Minimum Contributions: $250 initially, no minimum for subsequent contributions

Maximum Contributions: $494,000

Age-Based Investment Options: 10 portfolios

Static Investment Options: 29 individual-fund portfolios

State Taxation: All qualified distributions are exempt from Arizona state income tax.

Deduction of up to $2,000 per person for contributions to any 529 plan

Total Fees: 0.49% – 1.31%

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The Top 529 Education Savings Plans Of 2021

Morningstar identifies 32 best-in-class 529 plans.

The return of students to the classroom this fall means another cycle of Morningstar Analyst Ratings for 529 college savings plans.

Each year, Morningstar’s team of manager research analysts assigns forward-looking, qualitative Morningstar Analyst Ratings to a subset of the broader 529 plan universe based on our assessment of each plan’s investment merits compared with its peers. In 2021, when 529 education savings assets crossed the $400 billion mark and reached $437 billion by August, our analysts reviewed 62 plans representing 97% of those assets. Of this cohort, 32 received a recommended rating in the form of Gold, Silver, or Bronze.

Morningstar Medalist plans offer investment options that we expect will collectively outperform and exhibit some combination of the following attractive features:

  • A well-researched asset-allocation approach.
  • A robust process for selecting underlying investments.
  • An appropriate menu of options to meet investor needs.
  • Strong oversight from the state and investment manager.

Families invested in these 529 plans should be well-positioned for the future.

How We Approach Editorial Content

529 Plans: Withdrawal of 529 Funds

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investors point of view. We also respect individual opinionsthey represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.

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Earn Federal Tax Breaks

Your earnings from your 529 investments are always tax-free at the federal level if you use the money for qualified expenses. If you use the money for noneducation costs, you may pay income tax and a 10% penalty on the amount of earnings you withdraw.

Account owners may also make contributions to a 529 plan to avoid gift taxes. Typically, a gift tax would apply if you give someone more than $16,000 for the 2022 tax year. However, its possible to contribute more than this to a 529 plan and still avoid taxes.

Account owners can contribute up to five times the gift tax maximum in one lump sumthat would total $80,000 for the 2022 gift tax rules . You will need to file additional paperwork at tax time to correctly distribute this amount over five years, but frontloading your investments in this way could help you earn larger returns more quickly. This process can also be repeated when the five-year period ends.

Michigan Education Savings Program

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: TIAA-CREF Tuition Financing, Inc.

Residency Requirement: None

Minimum Contributions: $25 generally $15 per pay period with automatic payroll deductions

Maximum Contributions: $500,000

Age-Based Investment Options: 10 portfolios

Static Investment Options: Eight options

State Taxation: All 529 plans exempt from Michigan state income tax

Deduction of up to $5,000 for contributions to a Michigan 529 plan

Total Fees: 0.075% – 0.135% no fee for Principal Plus Interest investments

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Can You Use A 529 Plan For Multiple Children

Yes, sort of. At any given time you can only have one beneficiary for each account. That means you can only take distributions for that child.

However, if you have more than one child and only want to set up one account, you can always change the beneficiary to a qualified family member at a later date. Any unused balance could then be withdrawn by the new sibling for eligible education expenses.

Alternatively, you can set up a separate account for each child. If you end up with an unused balance in any of the accounts, you can switch the beneficiary to another child or grandchildor use it for your own education expenses.

How We Make Money

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

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Seven 529 Plans Flunk Out

We downgraded two plans to Negative this year: Nevada’s SSgA Upromise 529 Plan and New Mexico’s Scholar’s Edge. Nevada’s oversight of the SSgA Upromise 529 Plan lacks discipline as the state’s resources have gotten spread thin by overseeing four additional 529 plans. And, the plan’s glide path has structural issues that State Street Global Advisors hasn’t rectified since it was instituted. Ted Miller’s departure weighs heavily on the Scholar’s Edge plan. Egregious fees diminish its prospects further.

Most Negative-rated plans charge high fees that investors are better off avoiding. With such high fees, there’s little incentive to choose these plans when you can find similar offerings at a more desirable cost elsewhere. Prices can depend somewhat on how a plan is distributed–plans that are sold exclusively through financial advisors often layer on commission fees to compensate advisors for financial advice. But as other compensation models, such as fee-based advice, become more popular, investors have more freedom to avoid these commission charges, which are often bundled into a front-end load or all-in expense ratio rather than reported as a separate line item. That makes these plans worth skipping.

Make Changes To Your Plan Easily

One of the best things about 529 plans is their flexibility. It might be concerning to save tens of thousands of dollars, only for the beneficiary to decide that college isnt for them. But its fairly simple to change the beneficiary at any time you choose. The new beneficiary must be a member of the originals family, but that has a pretty open interpretation: A spouse, step-sibling, in-law, cousin or even a first cousin of the beneficiarys spouse could be eligible.

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Collegeadvantage Ohios 529 Plan

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Ohio Tuition Trust Authority

Residency Requirement: None

Minimum Contributions: $25 initially and subsequently

Maximum Contributions: $482,000

Age-Based Investment Options: Two categories one has nine portfolios and the other has 10

Static Investment Options: 22 options

State Taxation: All 529 plans exempt from Ohio state income tax

Deduction of up to $4,000 for contributions to an Ohio plan

Total Fees: 0.165% – 0.5% no fees with Fifth Third Bank investments

Student Tuition Assistance And Revenue Trust Saving Program

Are There Better Options Than a 529 Plan For College Savings?

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: Louisiana State Treasurer

Residency Requirement: Either the beneficiary or account owner must be a resident of Louisiana

Minimum Contributions: $10

Age-Based Investment Options: Three categories with four portfolios each

Static Investment Options: Seven portfolios

State Taxation: All 529 plans exempt from Louisiana state income tax

Deduction of up to $2,400 for contributions to Louisianaâs 529 plan

Total Fees: 0.02% – 0.14% no fee with Principal Protection investment

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Connecticut Higher Education Trust

Plan Type: Education savings plan

Direct- or Advisor-Sold: Direct-sold

Plan Manager: TIAA-CREF Tuition Financing, Inc.

Residency Requirement: None

Minimum Contributions: $25 generally $15 per pay period with automatic payroll deductions

Maximum Contributions: $300,000

Age-Based Investment Options: Three categories with nine portfolios each

Static Investment Options: Nine portfolios

State Taxation: Qualified distributions from any 529 plan are free from state income tax nonqualified distributions from Connecticut plans exempt if made to beneficiary

Deduction of up to $5,000 per person for contributions to a Connecticut 529 plan

Total Fees: 0.14% – 0.98% generally no fees with Principal Plus Interest option

Use The Money For Expenses Besides College

Besides common college expenses, you can use your 529 plan for a few other things. First, it doesnt need to be used for an undergraduate degreetrade school, community college, and graduate and professional degrees are also eligible. If you have children in private school, you can use up to $10,000 per year for K-12 tuition fees.

If the beneficiary graduates college and money is left in the account, you can still make good use of it. A lifetime maximum of $10,000 can be used for student loan payments on behalf of the beneficiary or the beneficiarys sibling.

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