The process of narrowing it down to one plan can be daunting in case you’re contemplating the use of a Section 529 plan to fund a loved one’s education. There are over sixty plans available to investors, and none of them are exactly alike. But then again, no two investors are exactly alike either! Choosing the right plan for you will ultimately come down to comparing the universal features among all the plans.  You can make an informed decision about which plan best fits your unique financial situation by identifying these features and how they vary from plan to plan. It’s important to remember that many states allow residents from out-of-state to use their plan.  Even in case you have no intent of going to school in that state, this can be done. What this ultimately means is that the best plan for you may not be the one your state offers. The first question is, "do you want to prepay tuition or build a portfolio?" While many people loosely throw around the term “Section 529 Plan,” there are actually two kinds of plans. Prepaid tuition plans allow you to purchase future units or semesters of education at today’s prices. Saving plans according to how your chosen investments perform, allow you to invest money that will grow.

The right section 529 plan

You are generally going to do better to choose a prepaid tuition plan in case you want safety and simplicity. You’ll want to use a savings plan in case it’s going to drive you nuts not to earn a competitive rate of return. Many states offer income tax benefits to their residents for contributing to a Section 529 plan. For using their home state’s plan some of the states offer a credit or deduction, while others offer exemptions from income tax on the withdrawals. There are even a few states that offer both. You will want to give that a good look in case your state offers a sizable benefit for using their plan. Saving money on your taxes, which in turn could also be contributed to your Section 529 plan, will turbo-charge your college fund’s growth. The savings plans offer you the ability to direct your investments while the Prepaid Tuition Plans offer the ability to “invest and forge. It’s important to select one that has good variety of investment options in case you’re using a savings plan. Some plans have 5-10 investment options (which may be too few), while some have as many as 200-300 (which is probably excessive). Ideally, a Section 529 Savings Plan will have a menu of 20-30 solid performers across all assets classes (large stocks, small stocks, bonds, and cash). Some people make the mistake of picking a Section 529 plan that has one or two extraordinary stock funds, with the rest being mediocre.