529 Savings Plan Investor Tips
Saving for education is an important goal for many families. FINRA offers these eight tips to help you make smart 529 savings plan choices:
1. Start with your home state first when looking for a 529 savings plan. Pay special attention to state tax breaks and fees that are waived or lowered for in-state residents. Do some research to see if there are other state benefits available to you.
2. Consider the plan's investment options. If you intend to use a 529 savings plan for K-12 tuition, keep in mind that your timeframe will be shorter than those who are saving only for college. This will likely impact your investment choices and the level of investment risk that might be appropriate for your circumstances.
3. Be aware that plans sold by brokers and advisers are generally more expensive than direct-sold plans sold by a state. If you're comfortable choosing a plan and selecting your investment options on your own, you can often save money investing in a direct-sold plan.
4. Compare expenses, especially if your state offers both advisor-sold and direct-sold plans and if you are considering investing in an out-of-state plan. If the 529 plan has share class options, do a cost comparison of those options based on how long you intend to hold funds in the plan before using them to pay for educational expenses. Refer to the plan's offering document to research expenses and share class options. Compare 529 plan fees and expenses using FINRA's 529 Expense Analyzer.
5. One size does not fit all. Some brokerage firms and advisers offer only one or a very limited number of 529 plans. They may not provide investors the opportunity to invest in 529 plans issued by other states, even though those plans may have lower sales loads and lower expenses, provide state tax advantages that are absent from the plans being offered, or have investment options that you might prefer.
6. Ask questions. If you are investing on your own, call the toll-free numbers posted on the state-sponsored sites. If you are working with an investment professional, ask:
- Does my state plan offer advantages that I might not receive if I invest in an out-of-state plan?
- How many 529 savings plans do you offer?
- Can I claim a state-tax deduction on contributions to the 529 saving plan you're recommending?
- How much will I pay in fees and expenses? And how will these fees impact my return on investment and tax savings I might receive?
7. Independently verify sales information you receive by thoroughly reading the official disclosure documentation offered by the 529 plan. Brokers are required to provide this documentation to you, and it may also be available on the MSRB's EMMA website.
8. Make sure the investment meets your objectives and that you understand and are comfortable with the risks, costs and liquidity of the investment. Never invest in a product you don't understand.
Subscribe to FINRA's The Alert Investor newsletter for more information about saving and investing.
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