What is a 529 Plan?

529 plans are tax-advantaged accounts designed for educational savings, such as college. WealthStep does not offer 529 plans, given that 529 plans are state-sponsored. You are not, however, limited to using the 529 plan in your own state.

While this could change, nine states currently have a state income tax, but do not offer a deduction for contributions: California, Delaware, Hawaii, Kentucky, Maine, Massachusetts, Minnesota, New Jersey, and North Carolina. Five states offer taxpayers a deduction for contributions to any state’s 529 plan: Arizona, Kansas, Missouri, Montana and Pennsylvania. This means that residents of all of the states above do not have a tax incentive to use their own state’s plan, and so can/should consider the 529 plans of other states as well. Currently, WealthStep generally recommends the Nevada and Utah 529 plans, because they are low cost (managed by Vanguard), and have pre-built portfolio options, so you don’t have to be an investment expert. At the time this FAQ was published, there are 27 other states that have tax incentives available (for state-specific information, see http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=437&page=compare_plan_questions), but depending on the quality of the 529 plan in each state (i.e. some are hard to use, don’t offer pre-built diversified options and/or are expensive), it may still make sense to consider the two recommendations above.