Q&A: State 529 College Savings Plans

Just a small proportion of parents of children heading to college are putting money aside in state 529 savings plans, though a new analysis finds that many of the plans have been making themselves more attractive by reducing fees.

In its annual rating of the plans, the investment research company Morningstar noted that the industry had been making significant fee cuts, so plans become less competitive if they don’t follow suit.

Beginning this year, up to $10,000 a year from a 529 fund can be used to pay for private school from elementary school onward.

Here are some questions and answers about 529 college savings plans:

A: No. You can invest in any 529, but you may get an extra tax break if you invest in your state’s plan.

A: There is no federal tax deduction for 529 contributions, but you may receive a deduction on your state tax return, depending on where you live. Thirty-four states and the District of Columbia offer tax deductions or credits to participating residents. (Some states even give tax breaks for contributions to other states’ plans.)

A: The website savingforcollege.com offers information about 529 plans, and includes its own plan ratings as well as a detailed analysis of plan fees. You can also check out the College Savings Plans Network website.