NEW YORK (MainStreet)There are a number of vehicles and strategies to choose from for parents looking for ways to put together a bankroll to send their children off to college. The tax advantages provided by 529 plans make these savings plans a commonly considered option. Depending on the situation, a 529 plan may or may not be an ideal solution. Here is some insight from a few subject matter experts.
The In-State Advantage
Parents that are seeking out an optimal 529 plan for their child may not have to look that far. "My first piece of advice would be to take a look at your home state 529 plan," said Eric Korbitz, a CFP and founder of Korbitz Financial Planning in Milwaukee, Wis. "Some states provide tax deductions for contributions into 529 plans. For example, in Wisconsin you can contribute up to $3,000 per beneficiary into a Wisconsin 529 plan and get a state tax deduction for it."
After taking into account the impact of a tax deduction, Korbitz advises individuals to check out plan fees. "Take a look at what the expense ratios are for plans in-state as compared to some of the lower-cost plans," he said. "There has been a fair amount of competition in this area in the last few years. Costs are coming down and that's a good thing for investors."
Korbitz notes that the value of a tax deduction may outweigh the savings from a reduced expense ratio. "Because of the tax deduction benefit, people are often better off putting money into their own state plan even if it is a little bit more expensive than some of the other discounted plans you may hear about like Utah," he said. "A state tax deduction essentially provides sort of like a match to you."