Can you please discuss 529 plans again? Do you still have your kids in Utah’s plan? My state now has “parity” and will give some income tax deduction for donations to any state plan (still need to read more on this). Should I go with Utah, or is another state the best option now?
Disclaimer: We are not financial professionals. Please consult an actual financial professional and/or do your own research before making important financial decisions.
Ooh, great question, and great benefit. Let’s take a look at this parity thing…
Minnesota taxpayers now have the option of claiming either a tax credit or deduction for contributions to any state’s 529 plan…
Deduction: Up to $3,000 for a married couple filing jointly or $1,500 for all other filers for contributions made to a qualified 529 account…
Credit: Credit can be claimed on half of contributions up to $500, subject to phase-out starting at a federal adjusted gross income of $75,000…
Calculator for which is better In 99 percent of cases, however, they’re going to be better off using the credit if they’re under the $100,000 income threshold…it’s safe to assume above and below the $75,000 and $100,000 income levels that they should take the credit or deduction, respectively.
So that’s cool. The question then becomes, what state’s 529 plan should you use. It seems like the answer should be the same as for people who don’t get any state income tax deduction from being in a 529 plan. And for that, you want places with (1) low fees, (2) reasonable investment options, (3) reasonable customer service… and probably in that order.
Let’s see what the big financial sites are saying now.
Forbes: Rates Maine, Nevada, and Utah as best options. (They also like Alaska, but note it has higher fees.)
Investopedia: Ohio, Utah, Illinois, Virginia, New York
Morningstar: Illinois, Virginia, Utah, California, though they intend to put out new numbers using a new methodology sometime in October that emphasize fees more. You will probably want to check this out before making any major changes/investments.
So… to answer your question, yes our kids are still in the Utah plan. Although some years another plan may match or even beat Utah’s fees, those plans don’t tend to consistently have the lowest fees. Although Utah doesn’t always have the lowest fees every single year anymore, it has always been competitive for non-resident plans every time I’ve looked. That consistency over time is why I don’t regret picking Utah and sticking with it given that we don’t get a tax break only from using our own state’s plan. Past performance doesn’t predict future performance, but there is something to be said for having a steady track record with fees over time. You’ll probably also want to take a look at Illinois and Virginia and maybe some of the other states listed above and see what you think.
Grumpy Nation, if applicable, what state is your 529 plan from?