Guide to the best and worst 529 Plans

Morningstar has released its annual review of 529 plans.

http://news.morningstar.com/articlenet/article.aspx?id=287783

What are 529 Plan?


529 plans are state-sponsored plans that allow you to save for your child's education. You don't need to put your money into your state's plan; you can pick any plan from anywhere in the nation. To make things even more complicated, states can lend their name to more than one plan of varying qualities. One state even has 6 plans under its name!

With 529 plans, you save money tax free and it's spent tax free down the road on your child's college. Be sure to put the plan in your name and list your child as the beneficiary. If your child doesn't go to college, the money can later be transferred to another non-related child.

The only danger with 529 plans comes when they're bought through ultra-high commission brokerage houses.

Morningstar singled out the Utah Educational Savings Plan Trust as one of their top picks. Ohio CollegeAdvantage and Virginia Education Savings Trust also get a thumbs-up in both assessments.

So who's the worst? The great state of Nebraska made the list twice -- for the Nebraska State Farm College Savings Plan and the Nebraska AIM College Savings Plan -- for the worst college saving plans in the United States.

Ohio is in the unique position of having plans on both the best and worst lists, according to Morningstar. What is the difference? The bad plan -- Ohio Putnam CollegeAdvantage -- is only sold through a commissioned stock broker.

Once you identify the state plan you want to participate in, where should you put your money? An age-based portfolio. That means the risk level automatically adjusts every 2 years based on your child's horizon of time before they need the money for college.

But before you start a 529 plan, you must save for your own retirement first. After all, there are no scholarships or student loans for retirement!

I am a very big fan of Clark Howard and attached is his thoughs on 529 plans and his pick of the best plans:

http://clarkhoward.com/liveweb/shownotes/category/7/76/215/381/#framesize_190