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Which States Have the Best 529 Plans?

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529 Plans by State

529 college savings plans serve as tax-advantaged vehicles that allow you to invest in your child’s future college education. Think of them as 401(k) plans for education. Simply put, you are contributing funds to a professionally managed investment portfolio that you can tap down the road. As you invest, your earnings grow tax-free. You can also withdraw your money any time without penalty as long as you use it to fund qualified higher education expenses like tuition and mandatory school fees at eligible institutions. Today, all states and Washington, D.C. sponsor at least one 529 college savings plan. Some states provide additional tax benefits by letting you make tax-deductible contributions up to certain limits.

Click on a State to see a Full Overview of Their 529 Plans

2 Plans

States that offer two 529 plans. Usually one will be a direct-sold plan and the other advisor-sold.

3 Plans

States that offer three 529 plans. These will usually be a combination of advisor-sold, direct-sold and prepaid 529 plan offerings.

4+ Plans

Only a handful of states offer four or more 529 plans. These will usually be a combination of advisor-sold, direct-sold and prepaid 529 plan offerings.

529 Plan History

529 plans emerged out of Section 529 of the Internal Revenue Code, which established the Qualified Tuition Program (QTP) in 1996. Today, states sponsor various kinds of 529 plans. The most common are investment savings vehicles. Some of these plans are direct-sold, which means you handle all investment decisions on your own. Advisor-sold 529 college savings plans, on the other hand, feature the support of a financial advisor who can guide you through the entire college savings process. A third type is known as a 529 prepaid tuition program. Through this type of plan, you essentially purchase college credits at current prices. Your child can then redeem those credits in the future regardless of how much tuition has risen.

529 Plan Benefits

In addition to unmatched tax benefits, 529 plans offer other advantages as well. For example, your student can combine your 529 plan savings with any financial aid package and scholarship he or she earns. In fact, only a small fraction of a 529 plan’s value would affect a student’s financial aid eligibility when a custodial parent owns the 529 plan account.

Plus, no rule limits you to opening an account with just one 529 plan or only one that your state sponsors. Anyone who is 18 or older with a valid Social Security or tax identification number can open a 529 college savings plan sponsored by any state. Some states sponsor their own scholarship programs, while other plans let anyone make tax-deductible contributions regardless of residency.

Where Can I Use My 529 Plan?

529 plans can fund qualified educational expenses at virtually any school that participates in a financial aid program that the U.S. Department of Education administers. That definition covers four-year universities, community colleges, trade schools and even some foreign institutions.

What Are Qualified Higher Education Expenses?

You can withdraw money from your 529 plan tax-free to cover qualified higher education expenses. Luckily, these include some of the most important and priciest college expenses you’ll encounter. Below are a few examples:

  • Tuition
  • Mandatory fees
  • Room and board that doesn’t exceed certain estimated costs of on-campus living
  • Books and school supplies required for enrollment
  • Electronics and even Internet access required to take classes

In addition, the Tax Cuts and Jobs Act that went into effect in January 2018 further expanded the definition of 529 plan qualified expenses. The federal government would not impose any penalty on you if you withdraw up to $10,000 a year from your 529 plan to cover tuition at private, public and religious K-12 schools. However, law makers are still debating how to treat such withdrawals for state tax purposes.

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How Much You Must Save to Send Two Kids to College and Retire on Time

SmartAsset's interactive map highlights places where you can save the least amount of money each month and be able to send your two kids to college and still retire on time. Zoom between states and the national map to see the top spots in each region. Also, scroll over any city to learn about cost of living in retirement there as well as savings rate.

Worst
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Rank City Median Household Income Cost of Living in Retirement Cost of Attending College (Two Kids) Savings Rate Monthly Savings

Methodology Many people may feel like they need to choose whether to save for their children's education or their own retirement. But there are some places in the country where you can do both. To find the best places to save for sending two kids to college while still retiring on time, SmartAsset gathered data on three separate regional factors. We looked at median household income, cost of living and the cost of attending college.

We wanted to compare a person in the same situation across many locations in the country. So first, we made several assumptions for the persona of this study. The persona is currently 30 years old, will send two kids to in-state college at the approximate age of 50 and retire by age 65.

Next, we looked at data from the Bureau of Labor Statistics (BLS) on the average annual expenditures of retirees over the age of 65 throughout the country. We then applied cost of living data from the Council for Community and Economic Research to adjust those national average spending levels based on the costs of each expense category (housing, food, healthcare, utilities, transportation and other) in each city. We reduced this cost of living by the average annual Social Security benefit received by retired workers, as estimated by the Center on Budget and Policy Priorities. The difference is how much money from savings would be needed in each location. Knowing this amount, we were able to calculate the retirement nest egg that a given household will need to cover its cost of living in retirement for thirty years.

According to the Economic Policy Institute, the average amount people have saved by age 30 for their retirement is approximately $35,000. We assumed the monthly amount each household is saving until retirement as well as the $35,000 would grow at a real return (interest minus inflation) of 5%, reflecting the typical return on a conservative investment portfolio comprised of 50% bonds and 50% stocks. We applied this real return to calculate the total amount a household would actually need to accumulate enough savings by age 65 in order to cover the cost of living in retirement.

Then we determined the total cost to send two kids to college using in-state tuition rates. Finally, we calculated a monthly savings total and a savings rate to reach both goals by adding up the monthly amount you would need to save in order to send two kids to college and the amount you would need to build your retirement nest egg by 65. The areas with the lowest amount of savings needed per month are the best places to live in order to send two kids to college and retire on time.

Sources: Bureau of Labor Statistics, Council for Community and Economic Research, College Insight, US Census Bureau 2016 5-Year American Community Survey, Vanguard, Social Security Administration, Economic Policy Institute