If you’re shopping for a 529 plan, do your homework first. Here’s where to start.
Search nationwide. More than 30 states offer tax incentives to residents who contribute to their college savings plans. There is no requirement that you choose your home state’s plan, however. You may find a better deal elsewhere.
Know the fees. Expenses, including account fees and fund costs, erode your returns over time. Look up fee data as you shop for college savings plans. Savingforcollege.com allows you to compare plans based on expenses and state tax benefits.
Do it yourself or seek help. College savings plans can either be direct-sold — you purchase the plan on your own and choose your investments — or advisor-sold.
The difference in cost is sharp: The average fee for advisor-sold plans that invest in active funds can be as high as 1 percent, according to Leo Acheson, associate director of multiasset and alternative strategies at Morningstar.
Direct-sold plans with actively managed funds average about 80 basis points, while those with passive funds average around 25 basis points, he said.
Save early and often. A child who’s a year old has a longer time horizon and more time to reap investment returns, compared with a teenager who’s about to go to college. Contribute early and regularly.