Simply put, I’m a huge fan of Ohio’s 529 DIRECT Plan. The Advisor sold version leaves a lot to be desired though. If you have an Ohio plan, make sure you understand the difference between the two. In my opinion, if an advisor recommends the “Advisor Plan”, they are giving far too much consideration to their interests, not yours.
Let me offer these quick MadeSimple points on 529 plans in general:
- If you live in a state that has state income-tax benefits, those need to be considered when choosing a plan.
- Finding the best investment platform may actually trump the value of those tax benefits. Low-cost investment choices reign supreme in my advisory practice when talking to clients about saving for college.
- Second to low-cost choices is finding a platform that has age-based investment options. Those choices allow you to save the money, then like a crock-pot, set it and forget it. The equity allocation reduces over time so that when your child is of college age, their dollars are invested in cash and short-term, high-quality bonds thus reducing the risk that a market correction wipes out your savings!
The Ohio 529 Direct Plan has all these features, which is likely part of the reason they were recently named as the #1 college savings plan for long term investment performance over the past five years. I believe so strongly in Ohio’s Direct Plan that if I have a client out of state who does not have a meaningful income tax benefit from using their resident state plan, we often encourage them to use Ohio’s plan to save for their education goals. For qualified higher education expenses*, a resident of Florida could save through an Ohio plan and have a child attend school in Texas!**
For my children, I use the Ohio College Advantage Direct 529 Plan and invest their money in the Vanguard Aggressive Age-Based Passive Investment Portfolio options. This works for me, and should not in any way be construed as advice for your particular situation. It is also important to note that we put a monthly contribution into their accounts as part of our family budget.
Remember, a dollar saved is a dollar earned – that’s why these expenses are so important, and a large part of how Ohio manages to do so well over long-term periods, in my opinion. Choose wisely.
Jamie
*Per the Ohio College Advantage website, they define qualified higher education expenses as: Eligible expenses include tuition, mandatory fees, computer equipment and related technology and services, books, supplies, and equipment required for enrollment or attendance; room and board costs during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.
**Per the Ohio College Advantage website, they offer this in regards to what constitutes an eligible college: You can use the assets in your account toward the costs of nearly any public or private, 2-year or 4-year college nationwide, as long as the student is enrolled in a U.S.-accredited college, university, graduate school, or technical school that is eligible to participate in U.S. Department of Education student financial aid programs. In fact, many U.S. colleges and universities now have campuses or locations outside of the country, where money from your account can also be used. A school is eligible if they have a Federal School Code, which can be searched at www.fafsa.gov
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