How To Choose The Best 529 Plan
Best 529 plans
Choosing the right 529 plan involves a series of decisions and reflections on your overall financial situation. It involves your perception of the future as well as your risk tolerance for investing. It also entails your certainty that your intended beneficiary will even choose to attend college. These are a lot of factors, we will try to cover a few of them here, but many of them need to be discussed in consultation with your tax and financial advisers.
The first is whether you are thinking of a prepaid tuition plan or the 529 savings plan. This is a factor of your own personal risk tolerance and of how you see the beneficiary. Do you think the beneficiary will be attending a state school? Do you think it s wise to lock the beneficiary into knowing they can monetary help, only if they attend a state school? Do you like the security knowing that the tuition will be paid whether or not the rates skyrocket? Do you like the idea that the investment is guaranteed by the state? If you like all of these security features and the virtual guarantee, then you may want to choose a 529 prepaid tuition plan.
But on the other hand, there are advantages to the 529 savings plan over the prepaid tuition plan. The savings plan allows you to start with much less money than the prepaid plan and it does not require regular set payments. If you are starting a plan but do not have a lot of cash now then the savings plan is probably best for you. If you do not want to lock the child into a state school then the 529 savings plan is still probably the best option. If you like the idea that you can aggressively save now, and then if things do not go as well as planned, you can pull some of the money out, then the savings plan is also the best. It really depends on how you see the future and on your current financial status.
Other things to consider are the state specific tax benefits, the overall expenses and fees, the investment options, as well as the flexibility of the specific plan to pay for other schools, even state schools in other states. The rules on how much and how often you can contribute should also come into play. As should the availability to split the investment between aggressive and conservative investment options as the overall balance grows. You may choose aggressive investment in the beginning years, but want to go more conservative with a majority of the portfolio as the child nears college age.
When choosing the best 529 plan for you, these are just a few of the questions that need to be asked. From most of the analysis of the two 529 plans that I have seen, it more or less comes down to having flexibility or a guarantee. If you want flexibility then you need to choose the savings plan. If you need a guarantee then choose the prepaid tuition plan. The only time you do not have a choice is if you are limited in money to start the program. If you are limited in available cash to start, then the savings plan is your only option because you can start it with as little as $25, whereas the prepaid tuition plan requires a much larger lump sum to start.
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