Making Dollars and Sense of College Savings' State Benefits
Some states' 529 plans offer better tax breaks and other savings.
Among the most attractive benefits of a 529 college-savings plan are the tax breaks college savers receive while building a nest egg to pay for a child's education expenses. All 529 plan participants can avoid paying federal taxes on their 529 savings' gains, but many states offer local benefits on the initial 529 contributions, as well.
Morningstar recently tallied the states' benefits to determine which states offered the most generous local tax breaks. By quantifying these benefits, college savers are better able to determine whether their home state's 529 plan is a good choice. Generous tax benefits and fee waivers may offset other shortcomings in a plan, like higher expense ratios or mediocre investments among the 529 plan's investment options. Likewise, if a state's tax benefits are little to none, college savers have little reason to stay with their state's plan and may instead seek a best-in-class plan elsewhere.