by Lori Kaye

Created on: August 09, 2009

The 529 plan is an excellent way to save for your child's future education. Every state offers them, but the quality of each plan can vary considerably. So, how do you choose which program is best for you?

The first choice you need to make is whether you want to work with a professional or not. About half of the plans are sold through investment brokers, but the others are available for you to administer on your own.

Advantages Of Non-Broker 529 Accounts

1) Expenses are less with a direct-sold 529 account.

There are usually higher annual costs included when you purchase an account from a broker. Sales fees can range from 1% for 5.75% of your contribution amount.

2) There may be special incentives for a direct-sold account.

Many states offer special income tax deductions to residents who purchase directly. They may also offer matching contributions, scholarships, or other financial aid packages. In addition, the state may protect your account from creditors if this becomes necessary.

Advantages Of Broker-Sold 529 Accounts

1) The biggest advantage to a Broker-sold account is that you get help from a professional. The broker can help match the right plan to your needs, your risk preferences, and as part of your complete financial portfolio.

2) The broker has access to some mutual funds that can't be direct-bought.

3) Because of the broker's expertise, you won't have to do as much research yourself. For some people, time saved is worth the additional cost.

Whether you choose to do it yourself, or go with a broker, you will need to consider the following factors:

1) Does the plan allow other family members to make direct contributions?
You may have other family members, like grandparents, who wish to deposit into the account. It is most convenient when they can make those contributions themselves.

2) Are there "accelerator" programs associated with the plan? These include Upromise Rewards, Fidelity's 2 percent Rewards MasterCard, and others. They deposit purchase rebates directly into the account.

3) Does the plan have joint ownership, or allow easy transfer of ownership. Unforeseen circumstances may arrive which make it necessary for you to transfer ownership of the account.

4) What are the minimum contribution levels? It's important to identify which plans fit within your budget.

5) Does the plan offer investments within your risk parameter limits? Some plans are "age-based." That is, investments are more aggressive while your child is younger, and become less so as they approach college age. Other plans allow you to choose particular funds.

6) Are there a variety of investments choices? Some plans only offer a couple of choices, but others have a wide variety. This allows you to tailor your plan to your own needs.

7) Other factors to consider are the quality of customer service, the frequency of account statements, and what online resources are available. How hard is it to request a withdrawal? You may also want to see if there are special benefits for state residents.

Selecting a 529 plan may seem confusing. But with a little research, you can sort through the various plans available to you.

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