Should I invest in my state's 529 even though I might move in three years?

July 27, 2012 4:38 PM

I have a question about 529 Savings Plans. Now that I have a little one, I'm looking to start investing in a 529. However, there is a better than decent chance that we'll move to a new state within the next three years. Should I invest in New York's Direct plan right away (which looks great - low expense and a nice amount to write off my taxes) even though I might lose future tax benefits in another state?
posted by Stynxno to work & money (5 answers total)

Yeah, there was a past question about this. If you're fairly certain that you won't be in your state, go with the best overall one.

We picked Iowa, based on AskMe's recommendations. (Things could have changed since then.)

And as always, kids can take loans for school, you can't for retirement, so make sure that you're set on that front.
posted by k8t at 4:42 PM on July 27, 2012 [1 favorite]

Our state (CA) doesn't offer a tax break based on 529 investment, so we reckoned VT was our best option, and in the 4 years we've been using it, we have zero complaints.
posted by colin_l at 5:42 PM on July 27, 2012

You could open a 529 in multiple states, as far as I know. So, when you move, you can open one in your state of residency or in a state which gives you a better benefit. Keep in mind, the grandparents can also open 529s with your child as beneficiary in their own states so that they can take write offs or, again, in another state with a better benefit.
posted by amanda at 7:42 PM on July 27, 2012

Take the state tax benefit if the state you happen to live in offers it; for us it is a 6% benefit up to the first $2500 per spouse, so a total of $300 comes back to us immediately for the first $5K we put in.

Before when we lived in a non-state-tax benefit state (California in particular) we went with the Utah 529 plan (this was about 10 years ago when I researched it). Vanguard-administered, very low fees, and we've been pleased with it. I see that Morningstar still thinks highly of it.

Good for you to plan ahead for the little one's future.
posted by scooterdog at 7:43 PM on July 27, 2012

Another option is a Coverdell Education Savings Account. I like them better than a 529 because you're not not limited to mutual funds. Why are 529 plans limited to mutual funds? I suspect that financial firms lobbied to have the law written that way because they make so much more money on mutual funds. Mutual funds have much higher expenses that really eat into your returns. ETFs can give great diversification with lower expenses than mutual funds. Some companies allow you to buy and sell their ETFs commission free. I'm not your financial advisor, investment advisor, or tax advisor.
posted by Daddy-O at 9:37 AM on July 28, 2012