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4 keys to choosing a 529 college savings plan

If you haven't yet begun investing in a 529 plan, you should consider doing so if your kid(s) are under 18 years of age.

Investigate sales methods
First investigate the plan(s) in your own state, particularly if you can benefit from any state tax breaks. Favor the direct-sold plans as opposed to adviser-sold plans, unless you can invest in the latter type directly without paying a sales load. Some states allow their residents to buy adviser-sold funds without paying loads.

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Compare plans
Compare the various plan features at Morningstar's 529 Center and and peruse the plentiful information available at As the states begin to comply with the new disclosure rules, you should be able to make apples-to-apples comparisons among the various plans using the plan documents they supply to you -- this year, I hope.

Hire help, but not on commission
If you don't wish to do the due diligence yourself, hire a fee-based financial planner who is familiar with 529 savings plans. Fee-based planners generally charge a flat fee or an hourly rate, but be sure to ask if they also accept commissions as payment. If so, you need to ask some hard questions about any plan that they recommend, and get a complete breakdown of all fees.

Monitor and react
If you're already in a 529 plan and you're unhappy with it, don't bolt immediately. You may have to pay onerous back-end loads or transfer fees for the privilege of switching into another plan. Again, you'll either have to do some homework yourself to see if it makes sense to switch, or hire someone out to do it for you. Carefully weigh all the trade-offs before making any moves, including any tax breaks you might lose if you go out of state.

See main story: Flaws showing in 529 plans for college savings


-- Posted: Feb. 16, 2005
Main: Flaws showing in 529 plans for college savings




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