Financial Insights

Are you using the right 529 plan for college savings?

A recent study concluded that 60% of open 529 plan accounts are invested suboptimally due to high expenses and tax inefficiency.  More specifically, college savers are relying on expensive home-state plans without offsetting tax benefits or matching grants and, in 2020, the aggregate projected dollar loss for households contributing to suboptimal plans was $37.7 billion1.

Every state sponsors a 529 plan, which allows contributions to grow tax-free and from which withdrawals are tax-free if used for tuition and qualified education expenses.  With college tuition costs continuing to increase more quickly than other household expenses, 529 college savings plans are sold as a reliable way to fund education expenses for a child or grandchild.  And, at the end of 2020, savers across the U.S. had put away $425 billion in 529 plans.

Knowing that you want to save for a child or grandchild as a hedge against future education expenses, the challenge for many is picking the right 529 plan.  You don’t have to use your state’s plan, for example.  But you may want to if your state offers a state income tax deduction for contributions to your state’s plan.

Without going into every detail of the plan alternatives and income tax deductions for every state, here are some basic questions to consider.

Does your state offer a competitive 529 plan? 

Is it a “Direct-Sold” plan where you sign-up yourself?  Or is it an “Advisor-Sold” plan that you buy through a financial advisor?

Does your state offer a state income tax deduction (or credit) for contributions to your state’s plan?

How do the expenses for your home state plan compare to other state?

Who is the “program manager” (investment sponsor) for your home state plan?

It pays to do you homework and it can be difficult for do-it-yourselfers to sort through the details, particularly if you are not familiar with how 529 plans work or how they should fit into your family’s education savings plan.

When in doubt, reach out to your advisor as they are already familiar with 529 plans and have the resources to compare and contrast the best options depending on the state in which you reside.

Beyond the details of choosing an appropriate 529 plan, the questions your advisor can help you with include:

How many children/grandchildren are you saving for?

What type of education are you planning for (private high school, public or private undergraduate, post-graduate degrees, any or all of these)? 

How much can I or do I need to contribute?

How do I invest my 529 plan contributions?

Given my financial situation, how big of a role should a 529 plan play in my family’s overall education savings goals?

What are the estate planning implications of funding a 529 plan?

Can I use 529 plans to fund education expenses for multiple generations?

Can I use 529 plan funding to jump start Roth IRAs for my children or grandchildren?


It’s generally understood that “college pays” in that it opens the door to a lifetime of higher earnings.  Tuition inflation also means that the cost college is increasingly out of reach out of reach for many and/or the typical family pays more for college out of their own pocket than expected. This is only part of the reason that 81% of families have to rule out some colleges because of cost2.

Not having a plan will generally result in a bad outcome and, if you have questions on education savings, you should reach out to your ACM Wealth Advisor.




  1. ©James J. Li, Olivia S. Mitchell, Christina Zhu, January 2023, Household Investment in 529 College Savings Plans and Information Processing Frictions, National Bureau of Economic Research
  2. Sallie Mae, How America Pays for College, 2022.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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