Interview: Joe Hurley
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Choosing a 529 plan

I've read that you have accounts with 529 plans in 32 different states. I know you don't recommend having that many, but when does it make sense to invest in more than one 529 plan, or for that matter, in an out-of-state plan?

Understanding 529 plans

• 529 plans vs. other ways • Choosing the right 529 plan • Avoiding mistakes with 529 plans • Upcoming rule changes

For most families, one plan is quite sufficient. I certainly don't recommend that you open up accounts in all sorts of different plans. One reason why some families might have an account in two plans is if they want to use the in-state plan to take advantage of a state's income tax deduction, but once they've maxed out on their deduction, maybe there's another out-of-state plan that they feel is better for other reasons.

How should people go about choosing the right 529 plan? What should they look for and how should they factor in federal and state tax implications?

The federal implications don't vary between the different plans. You're really just talking about state taxes, so you should always look at your own state's 529 plan first and see if there are special benefits. But I do encourage people to shop around and see what else is out there. You want to compare the investment managers, compare the fees and expenses between different plans and look at any other structural differences between the plans. By that I mean, for instance, whether it permits other family members to make contributions to your 529 account. Some states allow that, some others don't allow that. Certainly the vast majority allow it. Some states allow you to change account owners; other states don't, prior to the account owner's death or disability.

Those who open an account in a 529 savings plan will need to choose an investment strategy. Any advice on how they should invest their money?

I happen to like the age-based options because the plans have developed them to be appealing to as many American families as possible. Unless you have a reason for choosing a "static" option -- not one that doesn't change over time -- I think the age-based works well. I've seen it work with my own children who are older. When the stock market went down around 2000, 2001, their accounts were protected from that stock market drop because they were invested more conservatively.

Your account is going to be invested mostly in bonds and money market accounts if your child is close to college age or even in college. You're not going to get much of the upside of the stock market in most of these age-based options.