529 plans indexed options

Introduction
This post provides information on 529 plans utilizing Index Funds.

The following states have 529 plans but do not offer any tax deductions or matching on contributions. Therefore, it is advisable to select the lowest cost plan (for age-based plans, currently the Illinois 529; for individual portfolios, currently Ohio) for these states:


 * California 529 Plan
 * Delaware 529 Plan
 * Florida 529 Plan
 * Hawaii 529 Plan
 * Kentucky 529 Plan
 * Massachusetts 529 Plan
 * Nevada 529 Plan
 * New Hampshire 529 Plan
 * New Jersey 529 Plan
 * South Dakota 529 Plan
 * Tennessee (Plan discontinued)
 * Texas 529 Plan
 * Wyoming 529 Plan

Special Case:
These states offer the same deduction in and out of state, so investors should choose the lowest cost plan (currently the Illinois 529 and Ohio 529 plans) but they need to be sure to claim their deduction.


 * Kansas provides a deduction for both in-state and out-of-state 529's.
 * Maine provides a deduction for both in-state and out-of-state 529's.
 * Pennsylvania provides a deduction for both in-state and out-of-state 529's.

One can determine the breakeven point where using a lower cost plan option becomes cheaper than a state plan providing tax deductible and/or matched 529 contributions by using the following factors.


 * ( 1.) The tax savings amount (Deductible contribution x marginal state tax rate) + match.
 * ( 2.) The cost differential between the plan and the lower cost plan.
 * Dividing (1) by (2) provides the capital accumulation point where the lower cost plan subsequently overtakes the tax benefit.

A number of states now recapture deducted 529 contribution taxes if a plan is transferred to an out of state plan. Refer to this table for a list of these states.

The following states offer Vanguard Portfolios in their 529 plans.

 * Arkansas 529 Plan
 * Colorado 529 Plan
 * Hawaii 529 Plan
 * Idaho 529 Plan
 * Illinois 529 Plan
 * Iowa 529 Plan
 * Kansas 529 Plan
 * Louisiana 529 Plan
 * Missouri 529 Plan
 * Nebraska 529 Plan
 * Nevada 529 Plan
 * New York 529 Plan
 * North Carolina 529 Plan
 * North Dakota 529 Plan
 * Ohio 529 Plan
 * Oregon 529 Plan
 * Pennsylvania 529 Plan
 * Rhode Island 529 Plan
 * Utah 529 Plan
 * Virginia 529 Plan
 * West Virginia 529 Plan
 * Wisconsin 529 Plan
 * Wyoming 529 Plan

For a cost comparison between state Vanguard Portfolios refer to Vanguard 529 Plans.

The following states offer 529 plans run by TIAA-CREF:

 * Connecticut 529 Plan
 * Georgia 529 Plan
 * Kentucky 529 Plan
 * Michigan 529 Plan
 * Minnesota 529 Plan
 * Mississippi 529 Plan
 * Oklahoma 529 Plan
 * Vermont 529 Plan

For a cost comparison between state TIAA-CREF Portfolios refer to TIAA-CREF 529 Plans.

The following states offer 529 plans run by Fidelity:

 * Arizona 529 Plan
 * California 529 Plan
 * Delaware 529 Plan
 * Massachusetts 529 Plan
 * New Hampshire 529 Plan

For a cost comparison between state Fidelity Portfolios refer to Fidelity 529 Plans.

Additional states offering indexed portfolios

 * Alabama 529 Plan (BNY)
 * Alaska 529 Plan (TRowe Price)
 * District of Columbia 529 Plan (Calvert)
 * Maine 529 Plan (BlackRock)
 * Maryland 529 Plan (TRowe Price)
 * New Jersey 529 Plan (Franklin-Templeton}
 * South Carolina 529 Plan (Columbia)
 * West Virginia 529 Plan (SMART 529) (DFA)
 * Texas 529 Plan (OFIPI;Dreyfus)

Collegesure 529 Tuition Indexed Programs

 * Collegesure 529 Tuition Indexed Programs

Additional Links

 * College Tuition: Historical Cost Inflation
 * College Savings Bank
 * 529 Plan Fee Study
 * State Creditor Protections for 529 Plans
 * Saving for College
 * College Savings Plan Network
 * Vanguard College Savings Center
 * College Board
 * Information for Financial Aid Professonals (IFAP) Library

Academic Papers

 * Bogan, Vicki, "Are Higher 529 College Savings Plan Fees Linked to Greater State Tax Incentives?" . Available at SSRN: http://ssrn.com/abstract=1146539
 * Bullard, Mercer, "The Visible Hand in Government-Sponsored Financial Services: Why States Should Not be Allowed to Offer 529 Plans" . University of Cincinnati Law Review, Vol. 74, 2006 Available at SSRN: http://ssrn.com/abstract=826105
 * DeGennaro, Ramon P., "Asset Allocation and Section 529 Plans" . International Journal of Business, Vol. 9, No. 2, 2004 Available at SSRN: http://ssrn.com/abstract=423800
 * Kaplan, Richard L., "Back to School: The New Parameters of Funding a Grandchild's College Education" . Journal of Retirement Planning, pp. 25-36, January-February 2008 Available at SSRN: http://ssrn.com/abstract=1092230
 * Luna, LeAnn and Alexander, Raquel Meyer, "State-Sponsored College 529 Plans: The Influence of Tax and Non-Tax Factors on Investors' Choice" (January 31, 2005). Available at SSRN: http://ssrn.com/abstract=657422