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Last week I asked for opinions on the best 529 plans. In short, we’re looking for a plan, and we’re not enamored with our in-state option. As it turns out, I was mistaken when I said that we exceed the income limits for deducting contributions from our state taxes. Upon further investigation, it seems that they’ve changed the law, and they do allow for a deduction regardless of income, but you can only deduct $2000 in contributions per year on a single tax return.
In short, this means that my wife and I would be limited to a combined annual deduction of $2000 even if we set up separate plans for all four boys. On top of thiswe’re not crazy about the investment options, and we’re also planning on saving a lot more than $2k/year. Sure, we could do $2k in state to get the deduction and then focus our efforts elsewhere, but I’m not sure that it’s worth the trouble of keeping track of yet another account. Thus, we’re looking for an out-of-state plan to hold most, if not all, of our contributions.
After reading through the responses to my original post and doing some more research on my own, I’ve identified what appear to be the three best plans for our circumstances. They are (in no particular order): Illinois, Ohio, and Utah. What follows is a breakdown of the key features of each state’s plans. Note that I’m looking at all three of these plans through the eyes of an out-of-state investor. In some cases, the account maintnenance fees may be waived or at least reduced for state residents. Likewise, there may be tax benefits for in-state investors. But since those don’t apply in our case, I’m ignoring them.
Without further ado, here are my top choices:
Illinois BrightStart Savings (Link)
Account maximum: $235,000 per beneficiary (across all Illinois accounts)
Minimum contributions: $25 initial investment, $15 minimum for subsequent contributions.
Investment options: Two age-based options (active vs. index) and four static investments options. Age-based portfolios are held at Oppenheimer Investments whereas static portfolios are held in Vanguard mutual funds.
Fees & expenses: Account maintenance fee of $10/year. Investment expenses range from 0.20-0.23% for the Vanguard funds.
Ohio CollegeAdvantage 529 Savings Plan (Link)
Account maximum: $306,000 per beneficiary (across all Ohio accounts)
Minimum contributions: $15 per investment option.
Investment options: Investments are offered through Putnam (for Ohio residents only), Fifth Third, and Vanguard. I’m focusing on the latter, which means there are three age-based options and eleven static options.
Fees & expenses: There is no account maintenance fee. Vanguard funds have a management fee of 0.20%-0.30% and an underlying expense ratio of 0.05%-0.13%.
Utah Education Savings Program (Link)
Account maximum: $319,000 per beneficiary (across all Utah accounts)
Minimum contributions: None.
Investment options: Five age-based options and four static investments options. Investment Investments are held in Vanguard mutual funds or in the State Treasurer’s fixed income portfolio.
Fees & expenses: Account maintenance fee of $4 per $1,000 invested up to a maximum of $20 per year (waived for Utah residents). Annual program management fee of 0.25%. Investment expenses range from 0.025% to 0.13% annually, except for the State Treasurer’s Investment Fund which has no additional expenses.
Since all three offer very similar investment options (and all would allow us to invest through Vanguard, our preferred vendor) our decision will turn mainly on cost. Based on that, it looks like Ohio comes out on top until you get to higher balances, at which point Illinois looks to be the best choice, with Utah coming in last.
I’m still somewhat undecided as to whether or not we should put the first $2k into our state plan to capture the tax deduction and invest the balance elsewhere, or to just forego the small(ish) deduction, streamline our investments, and put it all in one state.
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