Regular readers have heard me rave before about the 529 plan here in Utah, the Utah Education Savings Plan. I recommend it for all Utah residents as well as those who don’t get much of a state tax deduction for using their own state plan. I was pleased to see a neutral website http://savingforcollege.com seems to agree with me. It ranks all the plans in every state, both for residents and non-residents.
There are other good plans, of course, and Utah is not the only one to receive the highest “5-Cap Rating.” But if you eliminate the advisor-sold plans, there are only 21 other states who get the 5 Caps for their plan for residents. It is far more rare for non-residents, with only 7 other states getting the full 5 Caps.
So if you don’t like your state plan, here’s the states who got the 5 Cap non-resident rating:
- California
- Michigan
- Nebraska
- Nevada
- New York
- Ohio
- Oregon
- Utah
They use objective and subjective factors to make their rankings including performance, costs, features, and reliability. It’s not that hard to figure out which 529 plans are good though. All you really have to do is check if they have Vanguard (Nebraska, Nevada, New York, Ohio, and Utah) or TIAA-CREF (California, Michigan, and Oregon) funds available. If the plan administrators are smart enough to pick Vanguard as the provider, they’re probably smart enough to design the rest of the plan well.
What is your opinion of ETF based plans? I have the Maine 529 and use the age based iShares option.
I don’t have any problem with ETFs in general, nor with iShares ETFs in particular. Maine has two plans, one sold through advisors, and one directly sold to the consumer. You can imagine which I would recommend for the typical reader of this website.
The consumer direct plan gets “5 caps” for residents, and 4 1/2 for non-residents. I have yet to hear anything good about Merrill Lynch, which runs the plan. It’s not Vanguard.
Maine is cool in that they actually match your contributions up to the first $400 (total, not per year). There’s another $500 matching grant if you do it before the kid turns one. Unfortunately, only $250 per child is tax deductible (and that’s only if you make less than $100K ($200K married) which will rule out a lot of docs.)
If I were using the Maine plan, I’d choose one of the iShares Age-Based Portfolios. Expenses aren’t too bad. To be honest though, if I were a Maine resident I’d get my $400 match (and the $500 one if possible), then invest the rest in Utah’s plan. Sorry, but Maine’s plan just isn’t nearly as good. What’s the point of sticking with Maine’s plan without a tax deduction? I don’t see one.
I was told by one financial adviser that if you live in CA, and use a 529 plan based in any other state, that the earnings on qualified withdrawals will be taxed by the state of CA (though not by the federal govt.) This conflicts with what I heard from a rep at Vanguard. Has anyone else heard anything like this? Does this exist in other states?
I had a question about the last part of your post;
“It’s not that hard to figure out which 529 plans are good though. All you really have to do is check if they have Vanguard (Nebraska, Nevada, New York, Ohio, and Utah) or TIAA-CREF (California, Michigan, and Oregon) funds available. If the plan administrators are smart enough to pick Vanguard as the provider, they’re probably smart enough to design the rest of the plan well.”
Are you saying that we should choose plans with Vanguard over those with TIAA-CREF? I live in California and I’m wondering if I should just go with the CA plan since it’s rated among the top ones, or should I still go with the UT 529 since it’s Vanguard?
I think this post would be more useful to you:
https://www.whitecoatinvestor.com/the-best-529-in-the-country-gets-even-better/
Thanks!
I recently received $5,000 of inheritance money and am expecting my first child in Jan. I am looking to start a 529 plan for him/her. Looking at all the options out there is somewhat overwhelming but was considering starting the Utah plan. Any suggestions?
The Utah plan is good, but be sure to look at your state plan first if you get any state tax benefits there.
I am from Ky and do not believe that my state’s plan has any tax benefits. Also, from what I have been told and read it is not a very good plan anyways. After reading over several posts on your website, I know you like your Utah plan. Also, it looks like other states, such as California, Nevada, NY, Ohio have good plans as well. It may be a difficult recommendation to make without knowing all the details of my situation but do you think I am safe picking any of these “5-cap rating” plans for non-residents to get things started? Or would you strongly recommend one over the other? Thanks!
I don’t strongly recommend one over the others. They are all constantly changing so it is always possible one will be slightly better than another for you. But as a general rule, I’ve been very happy with Utah’s and haven’t met anyone who wasn’t happy with it. More info here:
https://www.whitecoatinvestor.com/the-best-529-in-the-country-gets-even-better/
Hi, sorry if this is a really dumb question. I was sold a FL 529 plan for my son a couple of years back when he was 3, by an “advisor”. Can I now switch over/transfer the money in that plan to a different state plan- say the Utah plan? Or should I leave that in there and open another account? Thanks!
Yes, you can move it. It’s no big deal to do so.
Colorado also uses a Vanguard plan, FYI. I agree with you that when I see a business/organization choosing Vanguard, I already have more confidence to use them. Thanks for all the good information on how to navigate the murky waters of 529s. Just opened accounts for both our sons today.
Yes, it’s a continually changing landscape, almost always for the better, with 529s.
Dear WCI
I am trying to decide between vanguard Nevada 529 vs Utah’s 529. my state does not offer any tax benefits.
I was comparing the performance of the aggressive age based portfolio
for 1 year Utah -10.8%, vanguard -3.4%
for 3 year Utah 6.95%, vanguard 7.62%
5 year, Utah 7.19%, vanguard 7.6%
10 year Utah 5.32%, vanguard 5.22%
I do have other accounts with vanguard. Investing with vanguard will allow me to reach the voyager select services etc. I am not sure if that’s a good enough reason.
What do these voyager select services etc provide?
looking at the plans, it seems that the Utah fund provides a more gradual transition from aggressive to conservative as the child ages. the Nevada plan has 25% changes in stock to bonds every 5 year intervals.
I already have a small balance in the Nevada plan. But I now have a much larger sum of about 80K which was invested in our state pre paid plan which is not doing well. So the state is returning the money without penalty. I do not have any earnings.
my options would be to invest all this extra amount in the Nevada plan or start a new account with Utah. what would you recommend?
I would appreciate any input
thanks a lot
Voyager select isn’t worth much. A little lower commissions is the main thing.
The Nevada plan is fine. You’re already in it. You have accounts at Vanguard. Advantages of Utah over Nevada are small if any for you. Why not just put the $80K there? Certainly nobody is going to argue the Nevada plan is a bad one. The main reason to go with Utah over Nevada is if you want DFA funds. Whether that’s worth your hassle or not is up to you.
Thanks for your reply
I made large contributions in 2014 into our state pre paid college plan. Since the amounts were greater than $28,000 limit for gift tax, I filed the gift tax form and elected for the gift to be distributed over 5 years.
Now that the money is returned to me and I will be investing it in a different 529, do I have to file the gift tax form again? or as long as I remain below the limits for the 5 year gift tax, I don’t have to worry about it?
I am worried that the IRS will see one large gift contribution to 529 in 2014 and then another one in 2016, even though it is the same money being transferred.
I am not doing the trustee to trustee transfer as I would like to invest the money over a period of time rather than lump sum (with the market being high, I am afraid off buying high). There are no earnings so there should be no tax consequences.
I would appreciate any input.
Thanks a lot
Was the money returned to you or just moved from the pre-paid plan to the 529? If it was just moved, I see no reason to file more paperwork. If you actually had possession of it for a couple of months, you probably do have to do more paperwork.
Remember the market is usually at new highs, so that shouldn’t be a reason not to invest. I would just do the trustee to trustee transfer and keep your life simple unless your crystal ball is less cloudy than mine.
I have received the check but haven’t cashed it. I talked to Vanguard and Utah plan, they said I can sign the back of the check and send it to them so that they can complete the transfer.
One option I was thinking was to open 2 new accounts with Utah with half the money invested in the aggressive portfolio and the other half invested in more conservative option. I can then move the conservative plan to more aggressive plan in 6 months (529 plans allow you to change investments twice a year). This may decrease the impact of investing a large amount of money at once when the market is high.
Any thoughts?
thanks a lot for your help
https://www.whitecoatinvestor.com/dollar-cost-averaging-is-for-wimps/
If you’re not comfortable with all the money in an aggressive allocation now, what makes you think you’ll be comfortable with it 6 months from now? At some point, you’ll be all in. If that doesn’t work for you with an aggressive allocation, then I would suggest a more conservative allocation permanently. You’re really just playing psychological games with yourself.