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Best 529 Plans

The amount of collective student loan debt in America has surpassed $1 Trillion but to bring it closer to home, Finaid [3] says that the rate of college tuition inflation is normally twice that of the regular inflation rate. That means that the cost of college will rise an average of 6% every year. Add to that the fact that wages for most Americans are stagnant, college is quickly becoming much like a home. American families cannot afford it without going in to debt.

How do you plan to pay for your child’s college education? Maybe a large portion of their tuition is covered by academic or athletic scholarships but for the average family, that isn’t the case. Needs based grants will only pay for a portion of the tuition making student loans a reality for many. A recent study by the Associated Press [4] found that one out of every two college graduates either can’t find a job or they’re underemployed working in a field unrelated to their college major. This makes graduating with as little debt as possible a priority.

The 529 plan is the best answer to this problem. Although many plans used to allow for the purchase of years of college at today’s prices, most plans now work like a 401(k) where you invest money in to the plan and choose the mutual funds that fit your objectives. If you start contributing early, the tax advantages allow you to build up enough money to keep applying for student loans and many allow family and friends to contribute to the fund too.

The Best 529 Plans

529 plans are state sponsored but you don’t have to live in that state to enroll in their program. Some states offer tax advantages to residents who enroll in their state’s program. If that’s true of your state, take in to account your tax advantages when evaluating fees and investment return. The general rule is that states with no state tax will not offer a tax break and most states that do, provide deductions or credits for contributions.

To find the best 529 plans, start by going to savingforcollege.com [5] and researching the plan in your state. Evaluate a 529 plan just as you would a 401(k). Keep the fees as low as possible and stick with low cost index funds unless there’s a reason to pay the extra fees for an actively managed fund.

Next, many of the major financial media outlets publish yearly articles where they compile a list of the best 529 plans. States like Nevada, Alaska, Utah, Ohio, and Virginia make the list each year because of low fees and great return. CBS [6], as well as Kiplinger and MSN publish lists to get you started.

Bottom Line

If you have a young child, you’re in the best position to start a college savings account now and some of the best 529 plans are the best tools for assuring that your child doesn’t have to graduate with debt.