ATLANTA (1/14/14)--The new year has many people taking stock of their financial situation and setting goals for the next 12 months. But now is also a good time to look further into the future and begin tackling one of the biggest financial challenges--saving for college.
Since they were created in the '90s, tax-advantaged 529 savings plans--state-sponsored accounts named after the IRS code that created them--have been among the most popular investment vehicles for families saving for college.
But during the financial crisis the typical 529 plan for seven- to 12-year-olds lost about 28% of its value, according to the investment research firm Morningstar. Many 529 plans were revealed to have fatal flaws, such as poor management and expensive overhead (CNN, Jan. 7).
Many of these plans, however, bounced back during the economic recovery, and now feature lower fees and more investment options. The average fee for 529 funds dropped from 0.84% to 0.72% over the past three years, making them attractive again for families.
Here are some strategies to ensure you make the most of your 529 plan investments:
According to Morningstar, the states with the best overall 529 plans are Utah, Maryland, West Virginia and California.
For related information, listen to "Parental Income Dings a Student's Financial Aid" in the Home & Family Finance Resource Center.