My daughter was three months old when I decided to open a 529 account. She’s now seven and I’m just getting around to it. The delay wasn’t laziness exactly, it was decision paralysis. Every state has at least one plan, some have multiple, and choosing the “wrong” one felt like it would somehow materially damage my child’s future. So I did nothing for years while the market grew without us.
This time I actually sat down, researched every 529 plan available, and figured out which ones are worth considering and which ones you can safely ignore. Here’s what I learned.
How 529 Plans Actually Work
Quick refresher for anyone who’s fuzzy on the details.
A 529 plan is a tax-advantaged investment account specifically for education expenses. You contribute after-tax dollars, the money grows tax-free, and withdrawals are tax-free when used for qualified education expenses. Those expenses include tuition, room and board, books, supplies, and now up to $10,000 per year for K-12 private school tuition.
You can open a 529 in any state regardless of where you live. Some states offer tax deductions or credits for contributing to their own state’s plan, which might make an otherwise mediocre plan worthwhile if you live there. But if your state doesn’t offer tax benefits or you live in a state with no income tax, you’re free to choose purely based on plan quality.
The money can be used at any accredited institution nationwide, not just schools in the state where you opened the plan. A Nevada 529 works fine for college in Massachusetts. The state of the plan doesn’t limit where your kid can go.
If your child doesn’t use the money for education, you can change the beneficiary to another family member, use it yourself for education expenses, or withdraw it and pay taxes plus a 10% penalty on the earnings. The new rule allowing 529 to Roth IRA rollovers after 15 years also provides an exit strategy for unused funds.
What Makes a 529 Plan Good or Bad
Three factors matter most.
Fees. This is the biggest differentiator. High-fee plans can cost you tens of thousands of dollars over 18 years compared to low-fee alternatives. Some state plans charge total annual fees under 0.15%, others charge over 1%. That difference compounds dramatically. On $50,000 invested over 18 years with 7% growth, a 1% fee versus a 0.15% fee means roughly $15,000 less in the high-fee account. Fees are the clearest indicator of whether a plan is trying to help you or extract money from you.
Investment options. Most plans offer age-based portfolios that automatically shift from aggressive to conservative as your child approaches college age. They also offer individual fund options if you want more control. The quality and variety of these options matters, though honestly the age-based default is fine for most people.
State tax benefits. Some states offer significant tax deductions for 529 contributions. If you live in a state with income tax and your state offers a deduction, the math might favor your home state’s plan even if it’s not the absolute lowest cost option. We’ll get into the specifics below.
The Best 529 Plans Overall
If your state doesn’t offer tax benefits that lock you in, these are the plans to consider.
Utah my529 consistently ranks among the best. Extremely low fees, excellent Vanguard investment options, no minimum contribution, and a clean interface that makes management easy. Total annual costs range from 0.10% to 0.20% depending on your portfolio. This is my default recommendation for anyone without compelling state tax reasons to go elsewhere.
Nevada Vanguard 529 offers similarly low fees and Vanguard funds. Slightly fewer investment options than Utah but still excellent. Total costs around 0.14% to 0.19%. Nevada has no state income tax so there’s no home-state benefit to consider, it’s purely a merit-based choice.
New York 529 Direct Plan is worth considering even for non-residents. Low fees around 0.13%, Vanguard funds, and solid options. New York residents get a state tax deduction up to $5,000 per individual or $10,000 for married couples filing jointly, which adds significant value if you live there.
California ScholarShare 529 has improved dramatically in recent years. Fees have dropped to around 0.08% to 0.47% depending on portfolio, with the age-based options on the lower end. California offers no state tax deduction since the state doesn’t tax 529 earnings anyway, but the plan stands on merit.
Illinois Bright Start deserves mention for Illinois residents specifically. Fees are competitive around 0.11% to 0.64%, and Illinois residents get a state tax deduction up to $10,000 per individual or $20,000 for married couples. That deduction makes the plan compelling even though cheaper options exist elsewhere.
Plans to Avoid
Some 529 plans are just bad deals.
Advisor-sold plans through financial advisors typically carry much higher fees than direct-sold plans you open yourself. The same state might offer both versions with dramatically different cost structures. An advisor-sold plan might charge 1% or more annually plus sales loads, while the direct version charges 0.20%. Unless you genuinely need hand-holding that justifies thousands of dollars in extra fees, go direct.
Plans with high expense ratios and limited options. Some state plans seem designed more to generate fees than to help families save. Expense ratios over 0.50% for basic index-style investments are a red flag. Plans with only a handful of investment options controlled by a single high-fee manager are another.
Plans using actively managed funds as defaults. Active management costs more and statistically underperforms index funds over long periods. A plan whose age-based default uses expensive actively managed funds is starting you at a disadvantage.
I won’t name the worst offenders because plan structures change, but do your research before assuming your home state’s plan is good just because it’s yours.
State Tax Benefits by State
This gets complicated because every state handles it differently.
States with meaningful deductions for their own plans:
These states offer tax deductions or credits that can make their home plans worthwhile even if fees are slightly higher than the best options elsewhere. The value depends on your marginal tax rate and contribution amount.
Arizona, Arkansas, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin, and DC all offer some form of state tax benefit for 529 contributions.
States allowing deductions for any 529 plan:
Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania let you deduct contributions to any state’s 529 plan, not just their own. This gives you full flexibility to choose the best plan while still getting tax benefits.
States with no income tax:
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax, so there’s no deduction to consider. Choose purely based on plan quality.
States with income tax but no 529 deduction:
California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina don’t offer state tax deductions for 529 contributions. Again, choose based on plan quality.
How to Actually Compare Plans
The process I used when I finally stopped procrastinating.
Start with your state. Look up whether your state offers a tax deduction for 529 contributions and whether it applies only to the home state plan or any plan. Calculate what that deduction would be worth at your tax rate. This becomes your hurdle rate for considering out-of-state options.
Check Savingforcollege.com. This site maintains detailed information on every 529 plan including fee structures, investment options, and state tax benefits. It’s the most comprehensive resource I found.
Compare total annual fees. Look at the expense ratio of the underlying funds plus any administrative fees charged by the plan itself. The total matters more than either component alone.
Look at the age-based option. Most people should just use the age-based default portfolio, so evaluate that specifically. What’s the glide path look like? What funds does it hold at different ages? What’s the total cost?
Consider minimum contributions. Some plans require minimum initial contributions of $500 or more. Others let you start with $25 or even $1. If you’re starting small, make sure the plan accommodates that.
Our Choice
We live in a state with no income tax, so there was no home-state loyalty to consider. I opened the Utah my529 plan for both kids. The fees are about as low as possible, the investment options are excellent, the interface is clean, and setting up automatic contributions took maybe ten minutes.
I put both accounts in the age-based aggressive track since my kids are young and have long time horizons. I contribute monthly through automatic bank transfers and try not to check the balance obsessively. The money grows, I don’t micromanage it, and someday it’ll help pay for college.
The hardest part was making a decision at all. The second hardest part was accepting that I’d probably be fine with any of the top five or six plans and there was no perfect choice, only good enough choices and bad ones. I went with good enough and moved on with my life.
That’s the real lesson here. Don’t let decision paralysis cost you years of tax-free growth like it cost me. Pick a reasonable low-fee plan, start contributing, and stop overthinking it.
Tax rules vary by state and situation. This information reflects general 529 plan structures as of late 2024. Consult a tax professional for advice specific to your circumstances.
