Fees and tax benefits
Investment fees can reduce the growth of any account, including the balance of a 529 savings plan. The fees range from state to state and plan to plan, so a comparison of the plans should be made rather than automatically choosing the in-state plan. Most plans also charge an enrollment fee, along with yearly maintenance and management fees depending on the nature of the plan. Some or all of these fees may be waived if the balance held is high enough in the case of the savings plans, or are in a state that gives perks to in-state residents.
Contributions to a 529 savings plan are made with after-tax dollars. However, investment earnings are free from federal and state taxes (with the exception of a handful of plans including some in Mississippi and Missouri) as long as the money is used to pay for qualified education expenses. Some states also provide tax deductions for a certain portion of contributions to in-state plans. For example, Maine residents can deduct up to $250 of their contribution to the state plan this year, while California residents aren't allowed to take any 529-related deductions. Knowing what perks a state offers can help determine whether someone is better off sticking with the state plan or searching elsewhere.
There's another way to save money with a 529 plan: Most plans allow parents or guardians to buy directly from the plan sponsor via a "direct-sold" plan. The alternative is buying into a plan through a broker or sales agent in a "broker-sold" plan. If going with a broker, an additional enrollment fee, a withdrawal fee and/or an annual distribution fee, will have to be paid. These fees vary depending on the broker and the plan, but some can be upwards of 5% for the initial enrollment fee and from 0.25% to 1% for the annual distribution fees.