Plan, Nebraska College Savings, Utah Educational Savings, and Virginia CollegeAmerica.
Lagging as the worst, on the other hand, are the Alabama Higher Education 529, Alaska John Hancock Freedom 529, Missouri MOST 529 Advisor, Nebraska AIM College Saving, and two separate plans from West Virginia: Cornerstone SMART529 and Leaders SMART529. Typical reasons for the underper_formance include chunky management fees and _sluggish
Stocking Up: Picking the right investments
Once you choose your plan, then it’s time to figure out your ideal investments. In general, think of it as a miniature retirement plan: You’re going to need ready cash when your kid reaches college age, in about 16 years if you’re starting at birth. As such, start with a riskier equity-heavy portfolio when the student-to-be is still young and there’s plenty of time to get over any market slumps. Don’t get too conservative too early, or you could possibly miss out on higher returns of stocks. After all, you’ll need every little bit of appreciation.
Then as your child gets closer to college age, you can shift into safer investments like bonds or money market funds, which won’t tank just as your child is heading off to college. “The less time you have until your child goes to college, the less aggressive your portfolio should be,” says Pritchett. To make things simpler, most states offer an age-based fund option, which does the shifting automatically for you after you enter your child’s birth date, similar to target-date retirement funds, which have become the one-stop shopping option of the investment world.
If your needs or risk tolerance change, you can always change your investment selection once a year, notes Joe Hurley, founder and
CEO of Savingforcollege.com. But whatever fund options you choose, here’s a nice bonus: Competition is pitting every state’s 529 against every other one, and that’s working in your favor. Says Hurley: “Fees and expenses are significantly lower than where they used to be.” Some plans have cut their enrollment fees and lowered the fees charged for management expenses.
The Home Stretch: Tips on reaching the finish line
A few key strategies from the experts: If possible deal directly with 529 plan providers, such as—Vanguard or T. Rowe Price—rather than outside brokers who might charge commissions. Know that your 529 savings are not considered the student’s assets in calculations for grants and loans (another recent tax-law change, notes Hurley). Because it’s a parental resource, it won’t cripple your child’s ability to qualify for some forms of financial aid. “You’re not going to be penalized for saving,” says Williams of the College Savings Plan Network.
In addition, there are hard 529 maximums that you can’t surpass. The amount varies by state, but if the cap is say $250,000, then your contributions can’t exceed that. But if your 529 grows itself beyond that ceiling, then the total amount is still eligible for tax-free withdrawals.
Finally, don’t neglect your own future just so your kids will graduate debt-free. You have to be putting a little cash aside for your golden years at the same time;