I've got 18 years to save for college

Now that we're parents, we have 18 years to figure out how to pay for Baby Boy's college. After researching various options, we've decided to go with Ohio's CollegeAdvantage plan. In case you find yourself in a similar situation, I wanted to outline my thought process for selecting the best plan for us.

Check your own state first

We're from Texas, which offers the Lonestar 529 and Texas College Savings plans. We don't have a state income tax, so there is no in-state tax deduction for 529 contributions. Other states' rules vary, so you should check out a list of states that offer a 529 Plan tax deductions. It’s not the most recent list, but the best I could find. If your state offers a tax deduction, it might be best to go with that plan. If not, look around at other states' offerings to see if you can find a better deal on fees and investment options.

What to look for in a plan:

  • Minimum Investment
    Some states require $1000 or more to start a 529, and others require as little as $15. Depending on how much you have to invest, this could be a factor.
  • Maintenance Fees
    Some plans charge yearly maintenance fees. Depending on the invest options and a plan's performance, this could eat up a good portion of your investment.
  • Expenses
    Similar to mutual funds, 529s have expenses. I tend to stick with index funds because of the low fees. I found fees ranging from .30 percent to well above 1 percent.
  • Investment Options
    Most 529s are set up like retirement plans, with age-based plans, equity plans, balanced plans, etc. Many plans also are operated by big names, such as Vanguard or Openheimer
The verdict
We decided on Ohio's CollegeAdvantage plan because of the low fees (in the .30 percent range) and the investment options (we like Vanguard). I haven't yet set up the plan, so there may be some hitches in the system that change my opinion, but for now I think we've found a winner. I'm still debating between an age-based plan and developing my own portfolio with their offering of funds. I'll likely do a little of both.

We've been saving for our initial 529 deposit by socking away money in a sub-account at ING DIRECT. If you'd like to start your own ING savings account and help Baby Boy's 529 plan, shoot me an e-mail at compoundinginterestsblog@gmail.com. I'll send you a referral link where you can receive a $25 bonus for opening an account with at least $250. Baby Boy's account will also receive $10, and I know he'd be very grateful.


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