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Ask the Expert: Comparing Section 529 College Savings Plans

August 19, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: Can you compare Section 529 college savings plans -- I would like to know what you consider the top-rated plan?

A: It would be inappropriate for MoneyRates.com to recommend a given 529 Plan without knowing the investor's state of residence, financial situation, and specific college savings goals. However, there are some tips that can help you make intelligent decisions about 529 plans:

  • Match the product with your time frame. Since college savings tend to build up as your child approaches college age, as a general rule they should be more conservatively invested than longer-term savings, such as retirement savings. In particular, you should downshift investment risk as the time to draw on the funds approaches.
  • Look at a full range of results. Mutual fund companies like to advertise results in tidy 1-year, 3-year, and 5-year packages. Depending on market conditions, these figures can be misleading. Look at results over a complete market cycle -- a full range of rising and falling market conditions.
  • Watch those fees! Fee comparisons are also very important. In particular, avoid anything with a front-end or back-end load.
  • Consider tax advantages in your state. While you have the flexibility to invest in any state's 529 plan, you might lose tax advantages in your state if you invest in another state's plan. So if your state has a significant income tax rate, you might want to focus on your home state's options.
  • Measure the cost against the tax advantage. 529 plans are just one possible way to save for college. The tax advantage is nice, as long as it isn't offset by excessive fees and limitations on your investment options. In short, make sure you are getting quality investment choices at a reasonable price.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your question to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.

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