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. Savingforcollege.com 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 archimedes.com.  Of course as I mentioned earlier, check out Savingforcollege.com.  Not only you can find detail about each plan there, there are a lot of helpful tools and articles there too.

Update: Added more links

Recently, I just went through research of 529 plans for my second daughter. I ended up with selecting West Virginia Smart 529 Select plan. I used several online resources and direct links to each plans that I reviewed. I looked at the fees, details, funds offering, and other information for each plans. The best source to do research for 529 plan is probably www.savingforcollege.com.

I also looked at top 529 plans selection by several publications. Here are several links to "Best 529 Plans" articles that I found.

Kiplinger - Best 529 College-Savings Plans
The best 529 college-savings plans according to Kiplinger are:

• For low fees: Illinois Bright Start College Savings Program (Note: From all the plans I review, I agree with this. It is actually the runner-up for me personally)
• For overall investment mix: Alaska's T Rowe Price College Savings Plan
• For conservative investors: Michigan Education Savings Program
• For fund choices: College Savings Plan of Nebraska
• For adviser-sold plan: Virginia CollegeAmerica plan

The Best and Worst 529 College-Savings Plans
This article from MorningStar.com listed the best and worst 529 plans. The best 529 college-savings plans according to morningstar.com are:

• Ohio CollegeAdvantage
• Indiana CollegeChoice 529 Direct Savings Plan
• Utah Educational Savings Plan Trust
• Virginia Education Savings Trust
• Virginia CollegeAmerica 529 Savings Plan (Broker-sold)
  

The worst 529 college-savings plans according to morningstart.com are:

• Nebraska State Farm College Savings Plan (Broker-sold)
• New Jersey Best 529 College Savings Plan
• Montana Pacific Life Funds 529 College Savings Plan
• Ohio Putnam CollegeAdvantage (Broker-sold)
• Nebraska AIM College Savings Plan (Broker-sold)

You can see a lot of broker-sold 529 plans are rated low, which I think come down to the fees.

Consumer Reports - Some of the best and worst 529 plans
Consumer Reports also has a list of best and worst 529 plans. The best 529 plans according to Consumer Reports are:

• Georgia Path2College 529 Plan
• College Savings Iowa
• Illinois Bright Start College Savings Program
• Mississippi Affordable College Savings Program
• Colorado Direct Portfolio College Savings

The worst 529 plans according to Consumer Reports are:

• Wisconsin Tomorrow's Scholar
• Arkansas John Hancock Freedom 529
• New Jersey Franklin Templeton 529 College Saving
• Columbia New York Advisor 529 Plan
• Nevada Columbia 529 Plan

Money Magazine - Best low-risk 529 plans
Money Magazine list is slightly different, since it is focused mainly on "low-risk 529 plans".

• Illinois Bright Start College Savings Program
• Ohio CollegeAdvantage Savings Plan
• Utah Educational Savings Plan

It has been a few weeks that I have been researching 529 plans for my second daughter. Of course I have not been doing the research everyday. I have been quite busy lately to do it faster than I have planned. Anyway, if you want to look back at all the plans that I have reviewed so far, click here.

So far, I have looked into more detail the following 529 plans:

• Illinois Bright Start
• Ohio CollegeAdvantage
• Nebraska College Savings Plan
• Nevada Vanguard 529 College Savings Plan
• West Virginia Smart529Select
• Pennsylvania 529 College Savings Investment Plan

Of course there are more good 529 plans, but I am sort of limiting myself to 529 plans that offer Vanguard Funds, with the exception of DFA (Dimensional Fund Advisors) offered by West Virginia Smart 529 Select plan. If you have not heard about DFA and why I like DFA, check out this article The Best Mutual Funds: DFA or Vanguard? from FundAdvice.com.

I mentioned after the review of PA 529 Plans that my top three after the review I have done are:

• West Virginia Smart 529 Select
• Pennsylvania 529 College Savings Investment Plan
• Illinois Bright Start

I was contemplating of sticking to Pennsylvania 529 plan to keep it simple since I will be able to maintain only one account for both of my daughters 529 plans. But when compared to Illinois Bright Start, I really like the low expense ratios, even with $10 annual maintenance fees. My plan is to put in $500 initially and then add $100/month. After a year, the account balance should be around $1600 and the $10 annual maintenance fee charged by Illinois Bright Start will be around 0.625%. That would bring the first year expense ratios for Illinois Bright Start to be around 0.85% for me. This would be higher when compared to Pennsylvania plan.

Now, after two years, the account value should be around $2,800 (I am simply ignoring changes since I can't predict the market). The $10 annual fee make the total expense ratios for Illinois Bright Start to be around 0.58% (about 0.36% from annual fee plus around 0.22% for funds expense ratios). So after the second year, considering the expense ratios for both Pennsylvania and Illinois 529 plans do not change, Illinois Bright Start offers a better expense ratios.

However, I kept being tempted by DFA Funds offer from West Virginia. This is a great way to invest in DFA funds. Otherwise, to invest in DFA funds, I would need to go through advisors or brokers, which will charge around 1% annual fees in addition to fund expenses. The expense ratios for West Virginia Smart 529 Select is LOWER than Pennsylvania 529 plans! So I decided to cross out Pennsylvania 529 Plan after the comparison against Illinois Bright Start and West Virginia Smart 529 Select plans.

I was left to choose between Illinois Bright Start and West Virginia Smart 529 Select. So yesterday, I decided to take the plunge and open the account at West Virginia Smart 529 Select. I decided that the extra fees in the long run for West Virginia Smart 529 Select is worth it. So I went with my plan and put $500 in the initial investment.

Again, remember that I am not a financial professional and each person has different circumstances. But I think everyone should do some kind of research toward options available before deciding on the 529 plans. Don't simply go with your state 529 plans. In most cases, your state 529 plans may be the best option if you consider the tax benefit, since a lot of states offer state tax benefits only if you go with your own state 529 plans. But still, you want to look at the funds, expense ratios and other factors. I hope my learning helps other do the same thing.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

I am continuing on my look at 529 options for my second daughter. For the other 529 plans that I am considering or at least looked at, click here.

As a resident of Pennsylvania, I don't necessary have to stick with PA 529 plans to get state tax deduction. PA is one of the few states that give tax deduction regardless of which 529 plans I choose. However, there are several advantages of investing in PA 529 plans, and one of those is the investments I have in PA 529 plans are excluded for state financial aid purposes.

PA 529 plans have been re-branded several times in the last two years. Prior to September 2007, the plan was known as TAP 529. In Sept 2007, the plans were rebranded as nowU. However, when I log on to the site a week ago to check for my first daughter investments, I noticed that they no longer call it nowU. It is simply call Pennsylvania Treasury 529 College Savings Program. The new website is now www.makecollegepossible.com.

PA 529 plans offer two different options:

Guaranteed Savings Plan (GSP).
In this plan, the investor will be buying tuition credit based on current price. Below is what is written on the website for PA GSP.

The GSP provides the advantages of 529 plans and guarantees that your savings will keep up with the rising cost of college tuition. The GSP is unique because you save for tomorrow's college expenses at today's lower rates

This is relatively good option and I was very tempted on this option. However, there is one thing that bother me. Who guaranteed the performance? I think the plan actually take the money and invest it and hoping that the investment will be able to beat tuition rate increases. And this is what you can find on the footnote:

The guarantee is that, when used for qualified higher education expenses, your contributions will grow at the rate of tuition inflation at a Tuition Level that you choose. If the applicable GSP Credit Rate at the time a contribution is made has a premium, however, your rate of growth will be lower than the actual rate of tuition inflation at your Tuition Level by approximately the rate of the premium. Premiums do not, however, alter the way in which the dollar value of your account is determined. When used for qualified higher education expenses, each GSP Credit will still have the full value of the actual per credit tuition cost. The guarantee is an obligation of the Pennsylvania GSP Fund only. The guarantee is not backed by the full faith and credit of the Commonwealth of Pennsylvania, and is not an obligation of the Commonwealth of Pennsylvania, the Pennsylvania Treasury Department, Upromise Investments, Inc., Upromise Investment Advisors, LLC, or any other party. The GSP is not insured by the Federal Deposit Insurance Corporation or any other government agency.

Now, as you can see, this is not federally insured by FDIC or any other government agency, including the Commonwealth of Pennsylvania. What happen if they can't cover the redemption request? I remembered reading awhile back that they were not fully funded. I tried to find more info on this but I have not found reliable new information yet. If I find it, I will add it to this post later. (see update)

I personally prefer to know for sure where my money is invested, even if I may not be able to beat the increase in tuition rates. Thus the reason I prefer PA 529 Investment plan, where I have my first daughter 529 plan.

Update: I should have done my research. But as I have guessed, as of June 30, 2009, the present value of liabilities is $1,317,919,467 and the present value of assets is $1,095,022,856. That is a whopping $222,896,612 short. And I have read that PA GSP will be charging premiums for many college tuition levels. There ain't no such thing as a free lunch folks. PA GSP sounds great, until you actually dig deeper and found out it is not really "guaranteed" by the Commonwealth of PA or Fed.

Investment Plan
This plan offers Vanguard funds and managed by uPromise. You can invest in three age-based options (Aggressive, Moderate or Conservative) or 10 different individual options. The age-based options itself is actually investing in the 10 different individual options, except the fact that it will move you from one option to another option once your child get to certain age group. For my first daughter, we invest in aggressive age-based options.

Here are several observations I have with this plan:

• The expense ratios and fees for each funds offered by PA 529 Investment Plan are surely not the cheapest available. The fees range from 0.70% to 0.75%. From all 529 plans that I have reviewed so far, in term of 529 plans that offer Vanguard funds, I think Illinois Bright Start offers the combination of fees and options. I should have done more research for my first daughter 529 plan last time. I think last time I was swayed by the fact that by choosing PA 529 plan, the assets in the plan are excluded for state financial aid purposes. But since my first daughter 529 plan is already in PA plan, I don't want the hassle of migrating to a different plan.
• In most cases, the equity part of investments are invested in Total Stock Market. Example, for Aggressive Growth Portfolio, the allocation is 85% Total Stock Market Index Fund and 15% Total International Stock Index Fund. I have mentioned previously, such as in my review of West Virginia Smart529Select plan, I would prefer more international allocations and higher weight toward small cap and value funds.
• One thing that I like is that it is easy to start with PA 529 Investment Plan since there is no fees except asset based management fees and you can start as little as $25, so there is no reason why you could not start investment in your child's college funds. In comparison, Illinois Bright Start, which I really like, charge $10 annual maintenance fees for index strategy portfolio.

I think I will stop looking at other 529 plans after this one. I want to make selection fast. The option that I have looked into so far has been all offering Vanguard funds with the exception of West Virginia 529 plan. Right now, my top three in no particular order are:

• Illinois Bright Start - low expense ratios
  
• PA 529 Investment Plan
• West Virginia Smart529Select - DFA Funds

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

I am continuing on my 529 series. Today I will look at WV Smart529Select. Remember that I am looking at this as a potential investor with PA residency, where I can get tax break no matter which state 529 plan I opt with. For my view on other plans, click here.

West Virginia Smart529Select has been the one that I am really interested in and thinking of choosing before I decided that I really need to look at other options. It will always get extra point for me simply because of DFA Funds available, which is usually only available through brokers or financial advisers. Important note before I continue, West Virginia offers several 529 plan, including one called Smart529! The one that I think offer the better choice for most people is the Smart529Select plan. Thus if you are interested on it, please make sure you go to the right web site.

I have provided some details about this plan on my first post on the series. As I have mentioned earlier, you can invest in DFA Funds through WV Smart529Select. DFA Funds is passively managed, similar to Vanguard Index funds. However, DFA does not necessary follow index such as S&P. It has its own indexing strategy that let it managed its funds more efficiently. One such example, if S&P changes the companies in its index, Vanguard S&P 500 would then sells those stocks and buy new stocks. Those transactions mean transaction fees, such trade commissions. With DFA, it doesn't have to sell it right away if not necessary, since it does not follow specific index. That is just a simple example (as I understand it. Reminder, I am not a financial guru, just a simple IT professional that loves the topic of personal finance). One thing that I need to make clear, DFA funds could be riskier due to its higher weighting toward small cap and value. That is actually one reason I like Smart529Select. It allows me to take more risk with the investment.

For those that is more risk averse, unfortunately WV Smart529Select only has one track for age-based option, which is pretty much the aggresive track, while other states, such as PA nowU 529 Direct Investment plan offers three age-based options, aggresive, moderate and conservative options.

Here are the key considerations:

• Age-based options only offers aggresive track, which is actually even riskier that other states aggresive options due to higher weighting toward value and small cap.
• The total expense ratios ranges from 0.65% - 0.77%. While it is not the cheapest, considering in many cases, to get access to DFA, you will have to pay 1% fees for advisors, I consider this low expense ratios.
• There is $25 annual fees, which you can avoid if you meet certain requirement. If you are West Virginia resident, there is no annual fees. If not, one easy way is to enroll in automatic investment program for $50 or more/month. I am planning to put in $100/month, so this is not a problem for me. You can also avoid annual fees if you have $25,000 account balance. It is hard to reach that point right away. Also remember that if your state offer state income deduction, in many cases, you will have $13,000 limit per beneficiary/year, however, you can gift up to 5 years limit in advance, as long as you do not add anymore additional funds for the next 5 years.

This option was my top choice before I start doing my research. After my research so far, it is still my top choice, but the Illinois Bright Start option is not far behind. I won't be surprised if I decided to go with Illinois Bright Start instead of this one.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

This is the part 4 of the 529 option series. In this post, I will share with you my thoughts on Nevada 529 College Savings plan managed by Vanguard. My hope is by the end of the series, I will choose one option for the younger daughter. Here are the link to part 1, part 2, and part 3.

As with other states that I have mentioned so far, Nevada offers multiple different 529 plans, but there are two that I would consider, uPromise College Funds, which offers Vanguard Funds, or Vanguard 529 College Savings Plan, managed by Vanguard and obviously offers Vanguard Funds. Based on what I see, Vanguard 529 College Savings Plan offers lower expense ratios as long as you don't go with age-based option. If you go with age-based options, uPromise College Funds will offer better options. Since I am willing to manage my own portfolio and rebalance it as necessary, I would prefer Vanguard 529 College Savings Plan, managed by Vanguard.

Here are several important considerations for Vanguard 529 College Savings Plan:

• If you go with age-based options, there are additional 0.44% fees in addition to underlying funds' expenses.
• You can build your own portfolio with multiple different Vanguard Funds available, such as 500 Index, Small Cap Index, Value Index, Total International, TIPS, Total Bond, etc. I really like the option available and the fees are the same with whatever those funds charges. However, one major issue, next:
• The minimum investment for each of those funds are the same as if you invest in Vanguard taxable or IRA funds. If I want to create a portfolio with those funds I listed above (six funds), I would need at least $18,000 to start with, since each funds has a minimum requirement of $3,000. I don't think I have that much money to start with right away.
• One great advantage, since it is managed by Vanguard, I can keep my finance rather simple since I will be using the same account log in ID with my other Vanguard investments (taxable and Roth IRA accounts).

While I like the option, the minimum requirements to create the portfolio I like really hinder my option to create my desired assets allocation. I will have to settle with other funds balanced funds available from Vanguard 529 College Savings Plan, such as Vanguard STAR Portfolio or Vanguard Aggressive Growth Portolio (80% Total Stock and 20% Total International), until a few years later when I have enough to create my desired assets allocation. I would personally rate this option as 4/5. I like the fact that it is managed by Vanguard, with its low expense ratio and the number of funds available, however the minimum requirement for a 529 plan drop the rating for me a notch.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

This is part three of my 529 option series. In this post, I will share with you my thoughts on Nebraska College Savings 529 plan. My hope is by the end of the series, I will choose one option for the younger daughter. Here are the link to part 1 and part 2.

When I visited Nebraska College Savings Plan website, I was very impressed with the flexibility in the funds selection. The range of Vanguard funds available is one of the best for 529 plans. With Nebraska 529, I can put together portfolio that is similar to FundAdvice.com Vanguard Portfolio with the following Vanguard Funds:

• Vanguard Institutional Index
• Vanguard Value Index
• Vanguard Small Cap Index
• Vanguard Small Cap Value Index
• Vanguard Total International Stock
• Vanguard Short-term Bond
• Vanguard Intermediate-term Bond
• Vanguard TIPS

The differences compared to FundAdvice.com Vanguard Portfolio are no REITs (I wouldn't use Goldman Sachs Real Estate Securities with expense ratio around 1.11%), no further breakdown of International equities and some corporate bonds in short-term and intermediate term bonds.

From the surface, it seems like a great option for me that prefer leaning toward small cap and value equities. However, the management fees sort of chase me away. While each of the funds I listed above has low expense ratios, Nebraska College Savings Plan charge $5/quarter maintenance fee ($20/year) and 0.60% management fees! As I would be starting with low amount of money, that would end up to be a really high fees for the first few years. I always believe in the low cost index fund and the management and maintenance fees sort of offset the low cost, low fees Vanguard funds. For now, I would rate this 3.5 or 4 out of 5. This is sort of strange considering I was OK with the higher fees for the option to invest in West Virginia DFA options. May be I like WV DFA option since I couldn't invest in those funds without going to broker or adviser, yet I could do it through West Virginia 529 plan.

If you like Vanguard and want more investment options where you can pick and choose from more funds, this should be high on your list. This would have rated really high on my list if not for the fees.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

This is the second part of the 529 option series. In this post, I will share with you my thoughts on Ohio CollegeAdvantage 529 plan. My hope is by the end of the series, I will choose one option for the younger daughter. See part 1 here.

Ohio CollegeAdvantage 529 plan is another good 529 plan. It has a really low fees if you opt for Vanguard investment. I can go with Vanguard Aggressive Age-Based Portfolio and for age 5 or younger, the portfolio consists of:
- 80% - Vanguard Total Stock Market Index
- 20% - Vanguard Developed Market Index

This is similar to Pennsylvania Vanguard Aggressive Age-Based option, however it has more international equity when compared to Pennsylvania (85-15 domestic-international proportion for PA). However, I wish they would have use Total International Stock Index since it includes Emerging market, albeit small proportion.

One big advantage for Ohio when compared to other that I have listed so far is my ability to choose the equity option myself. Thus I can build a portfolio with my preferred assets allocation. It would be something like this (Note: I will have to put more thought into the asset allocations if I go with Ohio):
- Age 0-3:

• 40% - Vanguard 500
• 30% - Vanguard Extended Market
• 30% - Vanguard Developed Market

- Age 4-6:

• 30% - Vanguard 500
• 25% - Vanguard Extended Market
• 25% - Vanguard Developed Market
• 10% - Vanguard TIPS
• 10% - Vanguard Income Portfolio (Note: Overlap with Vanguard TIPS, which is fine since I would prefer more TIPS instead of corporate bonds included in Total Bond Market)

The flexibility and relatively similar fees with Illinois Bright Start push Ohio CollegeAdvantage ahead of Illinois Bright Start, at least for me.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

In this series, I will look through 529 plans from several states that I may be interested in. The first one I will discuss is Illinois Bright Start 529 plan.

Illinois Bright Start 529 plan is considered one of the best 529 plans by several publications, including Consumer Reports. It is managed by OFI Private Investments, Inc., a subsidiary of OppenheimerFunds, Inc. The investment options include funds from Oppenheimer, Vanguard, and American Century. Illinois Bright Start offers two approaches, the Index strategy and Blended strategy. The index strategy, as the name suggests, consists mainly of Vanguard funds, except for the use of Oppenheimer Institutional Money Market Funds. The blended strategy combined index funds from Vanguard with Oppenheimer funds. As an investor that believe in index investing with low costs or expense ratios, I think the index strategy is the way to go. Thus in this review, I will focus mainly on index strategy.

Several key information:

• There is $10 annual maintenance fee for the index strategy portfolio (Vanguard portfolio options).
• The expense ratio for the Vanguard portfolio options is really low, ranging from 0.20% to 0.22%.

My main comparison in term of assets allocation will be for age 0 to 3 years. For Illinois Bright Start Age-Based Index Strategy Portfolio, the investments include:

• 63% - Vanguard Institutional Index Fund
• 9% - Vanguard Extended Market Index Fund
• 18% - Vanguard Developed Market Index Fund
• 10% - Vanguard Total Bond Market Index Fund

Personally, I would have prefer to have no bond fund at this point, but I can accept 10% bond fund. I can look at it as the buffer. In term of international fund, I would have rather have Total International Index Fund or take some % toward Emerging Market fund. Of course that would probably increase the expense ratio and make it more risky. It seems like 529 is setup to be less risk averse, which is fine and probably good for most people.

Initial look into this option, for my purpose, I would rate it 4.5/5. I really like the LOW expense ratios and the use of Vanguard. I also like the additional exposure toward mid and small cap through Vanguard Extended Market Index Fund. Note recent problems with Illinois Bright Start with Oppenheimer fund (search on Google for "Illinois Bright Start investigation"). However, since this index strategy, while managed by OFI, it invests mainly in Vanguard funds, I am not too concern about it.

I have two daughters, one is currently 2.5 years old and the other is less than 1 month old. For the older daughter, we have 529 plan in my state (PA) 529 Invesment plan, managed by uPromise with Vanguard funds. The expense ratio on those is relatively higher compared to other 529 plan, but there is advantage of using PA plan in the future for financial aid purposes, if needed.

But since PA is one of the few states that give tax deduction for investment in other state 529 plan, for the younger daughter, I want to do more research in the 529 selection. I have several options, but I will share my process online.

• Pennsylvania Direct Investment - nowU Pennsylvania 529 Investment Plan. If I choose this one, I will be able to manage both daughters 529 plan in one account, thus simplifying my financial management. And if I choose this, I will probably go with Age-based Aggressive Option, which for 5 years or younger, the fund will be Aggressive Growth Portfolio. This portfolio invest in 85% Vanguard Total Stock Market Index Fund and 15% Vanguard Total International Stock Fund, with combined expense ratio around 0.70%. While I think those two funds are good, I don't like its assets allocation. I would prefer more international and more learning toward small cap value fund. Thus the reason I am also interested in the next option.
• West Virginia - Smart529Select. There are several reasons I like this option, but the main reason would be the access to Dimensional Fund Advisors (DFA), which is usually available through Financial advisors only. FundAdvice.com, one of my favorite financial websites, thinks that DFA is better than Vanguard. The expense ratio is relatively low too. If I go with Age-Based Portfolio, for child age 0-3, the portfolio consists of DFA Emerging Market Fund (5%), DFA International Core (20%) and DFA US Core Equity 2 (75%) with total expense ratio around 0.76%. I really like the higher allocation toward International equity and also the addition of Emerging Market when compared to Pennsylvania's nowU 529.
• I will also research in more details the options from Illinois, Ohio, Nebraska, Nevada and others that several websites listed in their top 5. As I mentioned earlier, Pennsylvania tax payer can deduct money invested in other states 529 plan, up to $13,000/year/beneficiary (or $26,000 for joint filler).

I know a lot of other personal finance blogger have detailed their research into 529 plan, but may be there is something you can learn from me or if you happen to be a reader living in the Commonwealth of Pennsylvania, it may relate better to you.

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter