These are the best 529 college savings plans available

As a parent, you may have high hopes that your child will somehow earn a full-ride scholarship to the college of their dreams. 

But realistically, that’s pretty rare. Only about 7% of college students receive some kind of scholarship, according to Education Data Initiative. Students receiving government grants and scholarships receive an average of just under $15,000, while private scholarships average under $5,000, Business Insider recently reported.

With some colleges listing the annual cost of attendance at over $90,000, the earlier you can start saving, the better.

If your student is still years away from filling out applications, it may be wise to start contributing to a 529 savings plan. A 529 is a tax-advantaged investment account designed to help families save for future education expenses. You don’t get a federal tax deduction for contributing, but investment growth within these accounts is tax-free. You won’t owe taxes on withdrawals for qualified education expenses which include kindergarten through 12th grade tuition, college or trade school tuition and supplies and even student loans.

Anyone can open a 529 plan for a beneficiary they choose — it doesn’t have to be your own child and it can even be yourself. But once you’ve named a beneficiary, you can only change the recipient to a family member of the original beneficiary like a sibling, child or first cousin in order to avoid penalties.

Nearly every state and the District of Columbia sponsors its own 529 plan. And while you’re typically able to open and contribute to any plan regardless of where you live, there may be additional tax benefits if you choose a plan sponsored by your home state. Your contributions may be deductible on your state taxes if you contribute to your home state’s plan, for instance.

Ranking 529 savings plans

Saving for College, an online resource for college financing, ranked state-sponsored 529 plans to determine the best accounts available. Plans are rated on four factors: performance, ease of use, savings success — which takes a plan’s fees and other features into account — and program delivery, which considers a program’s longer-term viability. 

Here are the 10 best 529 plans, according to Saving For College:

  1. Maryland College Investment Plan
  2. Alaska 529
  3. Smart529 WV Direct College Savings Plan (West Virginia)
  4. Smart529 Select (West Virginia)
  5. T. Rowe Price College Savings Plan (Alaska)
  6. ScholarShare 529 (California)
  7. NJBEST 529 College Savings Plan (New Jersey)
  8. Path2College 529 Plan (Georgia)
  9. Learning Quest 529 Education Savings Program (Kansas)
  10. Edvest 529 (Wisconsin)

While the rankings are based on factors available to all account holders, Saving for College also separately rated each plan’s resident benefits as either “basic,” “good” or “best.” 

The top-ranked Maryland College Investment Plan offers in-state residents the best benefits, because account holders can get a state tax deduction worth up to $5,000 per beneficiary for joint filers, and some account holders are eligible for $250 or $500 contributions from the state.

While the rankings are helpful to get a sense of the best plans in terms of fees, management and historical performance, it’s a good idea to check out your home state’s offerings first to maximize the benefits you’re eligible to receive.

Is a 529 plan right for you?

While there are numerous benefits to saving for education expenses with a 529 plan, be sure to fund such an account with money you truly don’t plan to touch for awhile. That will give your investment more time to grow and plan funds can only be used tax-free for qualifying education expenses. That includes a number of items like college or private school tuition along with books and other supplies.

If you need to withdraw the funds at any time to use on non-qualifying expenses, you’ll incur a 10% penalty and potentially owe income taxes on any investment gains. Funds in a 529 plan may also affect your student’s financial aid eligibility, but not significantly.

If your student does wind up getting that full-ride scholarship, their 529 plan funds may still come in handy. As mentioned, students can use the funds on school supplies besides tuition which may not be covered by their scholarship. Plus, provided a 529 account is at least 15 years old, up to $35,000 of unused funds can be rolled into a Roth individual retirement account. 

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