Things to consider when selecting 529 College Savings Plan

Tuesday, August 25, 2009 |

Since I just went through 529 College Savings Plan selection for my second daughter where I ended up selecting West Virginia Smart 529 Select, I will share several things and the process that I went through.  Note that I only discuss investment plan, not pre-paid or guaranteed saving plans.

Tax Consideration
Each state offers different tax break for 529 plan.  I live in Pennsylvania where I get tax deduction no matter which state 529 plan I selected.  In most states, you will only get tax break if you invest in your state 529 plan.  Even though there may be better plan other than your state 529 plan, the tax break offer by your state may make your state 529 plan more desirable for you. is obviously one easy way to find out the information on this.

Of course you won't be eligible for some plans simply because of residency requirement, such as Pennsylvania GSP plan which is open only to PA residents.

Review "Best 529 Plans"
There are several publications that listed their best 529 plans.  This is a quick way to limit the number of other plans you may want to review.  There are so many options out there that it will be a waste of your time to review each plan to see the advantages and disadvantages.  I listed several "Best 529 Plans" articles here.

As a fan of Vanguard, I actually limited myself somewhat to 529 plans offering Vanguard funds (with the exception of West Virginia Smart 529 Select with its DFA funds).  To find out list 529 plans offering Vanguard funds, you click here.

Funds Family
Does funds family matter to you?  It does for me.  I focus mainly on Vanguard and DFA.  I am not saying that other options are bad.  In fact there are many other good ones, such as those offering TIAA-CREF, T. Rowe Price, and others.  However, I want  either Vanguard or DFA due to my familiarity with those funds.

Funds selection
How flexible is the funds selection?  Do you have enough options?  Do you think you can create enough diversification with the options available?  Plans such as Nevada 529 College Savings plan are great since you have a lot of options, but there are minimum for each options, which make it hard to create proper diversification when your account value is low.  One thing to remember too, there is no reason to match your the asset allocation with your 529 asset allocation.  Your asset allocation for your retirement have different time horizon when compared to education savings.  In most cases, you may need the college education funds for only 4 to 5 years (ignoring graduate degree, since I think the kid should pay for that themselves) and the time to invest is around 18 years.

Fees and expense ratios
While I listed this last, I consider this as one of the most important considerations.  Check the fees and expense ratios for each plan.  For example, while Illinois Bright Start College-Savings Plan has a really low expense ratio, it has annual maintenance fees.  Thus if you are going to have a low balance, that fees will be a bigger part of your investment.  If you have higher balance, then the plan could easily become one of the cheapest.

Other considerations
There are certainly other things to consider when researching 529 plans.  One example, in Pennsylvania, the contribution by PA resident toward PA 529 plans are excluded for state financial aid consideration.

Comparison Tool
One website that I found very helpful in doing comparison can be found on Vanguard.  Vanguard has 529 Savings Plans comparison tool.  The tool is powered by Archimedes Systems, thus the website URL is at  Of course as I mentioned earlier, check out  Not only you can find detail about each plan there, there are a lot of helpful tools and articles there too.


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