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Making the Decision: Choosing a Home State vs. Out-of-State 529 College Savings Plan

Which matters more: low plan fees or potential state tax benefits?

One of the myths about 529 college savings plans is that you are limited to your home state’s 529 program - but you’re not. In fact, you can open a 529 plan in any state, and your beneficiary can use funds for qualified tuition expenses at many colleges and universities nationwide. You should carefully review your home state plan to see if it offers benefits that are only available if you invest in that plan.

Considering your home state 529 plan is a good place to start, but is it the best choice for you? This question is one that only you can answer - but here are some key factors to keep in mind.

State Tax Deductions

Many states offer state tax income tax deductions for 529 plan contributions, but the impact of these deductions is sometimes smaller than you might think.

For example, a $1,000 529 plan contribution for a New York state resident would result in $64 in state tax savings.

This example is for illustrative purposes only, looking at the state tax deduction impact of a $1,000 contribution for a married couple with an income of $75,000 filling jointly in New York state.

Plan Fees

Because there are many types of fees, costs can vary widely between plans. If your home state plan charges an annual maintenance fee or has higher administrative fees than an out of state plan, you may be in a situation where you could save more money with a lower fee, out-of-state 529 plan than you would via an income tax deduction on your home state plan.

If low fees are important to you, you may want to look for plans that do not have start-up fees, maintenance fees, or sales charges.

Investment Options

It is important to see if the plan offers the type of investment options you are looking for - whether you’re looking for investment options focused on sustainability or an age-based portfolio that adjusts automatically as the beneficiary gets closer to attending college.

NOTE: To calculate the specific impact of state tax benefits in comparison to an out-of- state plan that may offer lower fees, please use the Cost Comparison Calculator. You can receive a free report containing your customized results by email.

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