The Best 529 Plans for 2023 and Beyond

Each state, except Wyoming, sponsors at least one of these savings vehicles, as does Washington, D.C. Money you contribute to these plans comes from after-tax dollars, so your contributions can reduce your taxable income. Your money also grows tax-free. And you won’t face any taxes if you withdraw money for 529-qualified educational expenses like tuition.

Some states allow you to take additional tax deductions or credits based on how much you contribute. But the great thing is that you’re not limited to investing in the 529 plan sponsored by your state. You’re free to enroll in any program you wish. With that said, not all 529 plans are created equal. Some charge high fees and offer poorly performing investment options, which is why it’s important to find the right one to put into your budget.

Federal gift tax considerations

Although 529 plans are set up by states and participants must follow state rules, you should be aware of the federal gift tax exemption, which changes yearly.

In 2022, the annual gift tax exemption is $16,000, meaning a person can give up $16,000 to as many people as he or she wants without having to pay any taxes on the gifts. For example, a man could give $16,000 to each of his 10 grandchildren this year with no gift tax implications. But perhaps the same man chooses to give each grandchild $20,000 instead, exceeding his annual exclusion limit by $4,000 per gift. In this scenario, grandpa could potentially owe gift taxes on the $40,000 overage, but more on that in a bit. What about married couples? Each spouse may give away $16,000 tax-free in 2022. This would allow a married couple to give up to $32,000 to each of their three nieces and nephews every year.

In 2023, the annual gift tax exemption is $17,000. This means that a married couple can give $34,000 ($17,000 x 2) per recipient that year. For example, if a married couple has two children and six grandchildren they may give $272,000 in 2023 without affecting their joint $25.84 million overall tax exemption, which is the $12.92 million estate tax exemption for 2023 multiplied by two.

How to pick a 529 plan

Once you decided on either a prepaid tuition plan or education savings plan, the next thing you’ll need to do is pick which of these types of plans you want to use. After you’ve made that choice, consider the specific investment options and contribution rules that each plan offers. To make it a bit easier, we’ve broken down nine of the best plans below. These plans are provided in no particular order but can all be good options for anyone looking to open a 529 plan, regardless of what state you live in.

1. Utah 529 Plan (My529)

Unlike several 529 plans, the direct-sold Utah 529 plan requires no minimum contribution. You can open an account with as little or as much as you’d like. From there, you can contribute up to $540,000. This stands as one of the highest allowed 529 contributions in the country. And once you reach that level, your money still grows tax-free. Utah residents in particular may take a 4.85% income tax credit on their contributions up to a certain limit.

In addition, the My529 Plan offers a diverse range of investment options. And you don’t have to be an expert in finance to invest in this plan. For instance, you can contribute toward age-based investment options. These portfolios automatically change their asset allocation to generally become less risky as your child approaches college. The idea here is that you should be more cautious as you approach the years when your child would need his or her savings the most.

However, the Utah 529 plan gives you a little more control over asset allocation than the typical 529 plan. It offers age-based options based on specific risk levels. For example, you can invest in an age-based conservative or aggressive option. The latter will invest a larger portion of your money on more growth-oriented investments like stock funds. In addition, you can choose from age-based aggressive global or domestic funds. The former option diversifies your investments with domestic and non-domestic funds. You can also build your own portfolio with static investment options that keep a set asset allocation or customized investment options.

If you’re not sure what your risk tolerance is, you can use our asset allocation calculator. It helps you visualize a potential investment mix based on your preferences.

Overall, the My529 Plan offers something for all types of savers. Most investment options are also built with low-cost index funds from Vanguard and more actively managed options from DFA Funds. Total annual asset-based fees range from 0.0% to 0.75%, depending on the investment options you choose. And if you’re a resident of Utah, you can invest in the Public Treasurers Investment Fund with no total annual asset-based fee.

2. Virginia 529 Plan (Invest529)

Investment-research firm Morningstar awarded the Virginia Invest529 Plan a gold rating for three consecutive years.

In fact, this Virginia 529 plan, which has a $10 minimum contribution to get started, stands as one of the most fee-friendly options in the country. Estimated expense ratios, depending on the portfolio type, can range from 0.00% to 0.563%. And to boost their savings, Virginia’s residents can deduct up to $4,000 in contributions from individual state income taxes each year.

You can contribute up to $550,000 to the state’s 529 plan.

In addition, the Virginia 529 plan offers a diverse range of investment options, including passive and actively-managed static portfolios. Actively-managed funds aim to beat the market as opposed to passively managed options, which tend to track individual indexes of a certain asset class such as international stocks or high-yield bonds. Plus, the plan also offers a real estate investment trust (REIT) portfolio. And unlike several other 529 plans, you can also invest in an FDIC-insured portfolio. Just like FDIC-protected bank accounts, this option protects your funds up to $250,000 in the unlikely event the plan shuts down entirely. You can even invest in a Socially Targeted Investment portfolio. This option aims to invest in securities from firms deemed socially responsible.

Annual asset-based fees range from 0.07% to 0.336%.

3. Illinois 529 Plan (Bright Start)

The Illinois 529 plan allows state residents to deduct up to $10,000 in contributions from their state income taxes per year. The maximum contribution limit is $500,000.

The plan also stands out for its robust investment menu. For instance, it’s one of the few plans that allow you to invest in multi-firm target portfolios. These options keep a set asset allocation. However, they utilize active and passive investing strategies deployed by well-established firms including BlackRock, T. Rowe Price and DFA. Index target portfolios follow a passive strategy and are composed of low-fee Vanguard funds.

In addition, you can contribute toward age-based portfolios that follow specific risk tracks. These are conservative, moderate and aggressive. Or, you can build your own investment option using individual portfolios that offer exposure to asset classes like real estate, fixed income and international equity. Plus, the Illinois 529 plan features very reasonable fees. Annual asset-based fees range from 0.00% to 0.69%.

4. Nevada 529 Plan (Vanguard 529 Plan)

You can enroll in one of five different Nevada 529 plans. But the one that stands out is the Nevada Vanguard 529 College Savings Plan. According to Morningstar, this option remains the lowest-cost 529 plan run by Vanguard, which has a $500,000 maximum contribution limit, that “reflects the firm’s best thinking.”

In addition, the plan is recognized for its low fees. Total asset-based expense ratio ranges from 0.14% up to 0.42%. It also offers a diverse investment menu. You can choose from age-based options on three different risk tracks: conservative, moderate and aggressive. You can also design your own investment option using several different stand-alone index funds and actively managed ones.

Furthermore, this Vanguard 529 plan also allows you to enroll in programs designed to boost your savings. For instance, the Ugift program makes it easy for you to request donations from friends and family during special events like your child’s birthday. The Upromise program helps you earn rewards when you make purchases at popular retailers or restaurants. You can then easily transfer these rewards directly to your 529 plan account.

5. South Carolina 529 Plan (FutureScholar South Carolina 529 College Savings Plan)

South Carolina’s Future Scholar 529 Plan allows state residents to deduct up to $540,000 in contributions from their state tax returns each year. That’s nearly unheard of in the 529 industry. It makes the South Carolina 529 Plan among the most generous in the nation when it comes to state tax benefits.

In addition, the plan also charges very reasonable fees. Unlike several plans, the South Carolina 529 College Savings Plan charges no program management fee or account fee. In most cases, managers factor these fees into the total annual asset-based fee for each portfolio. Expenses ratios, as of Dec. 1, 2022, for the South Carolina Future Scholar 529 Plan span from only 0.06% to 0.16%. You can also invest in a Bank Deposit Portfolio with no asset-based fees.

While your investment options won’t include age-based portfolios, you can still select from a diverse investment menu. For example, the South Carolina 529 Plan is one of the few that offers portfolios made from low-cost exchange-traded funds (ETFs).

6. Michigan 529 Plan (Michigan Education Savings Program)

The Michigan 529 plan earned a silver ranking from Morningstar. Its contribution limit is $500,000. Its investment menu contains a guaranteed investment option. This portfolio charges no annual asset-based fee. It’s designed for investors with very low-risk tolerances or those whose beneficiaries are close to their college years. It aims to preserve capital and provide a decent return by investing entirely in a funding agreement issued by TIAA-CREF Life to the Michigan Department of Treasury. According to the MESP website, “the minimum effective annual interest rate will be neither less than 1% norm greater than 3% at any time.”

In addition, you can invest in multi-fund portfolios designed for different risk profiles and objectives. Total annual asset-based fees for portfolios, except the funding agreement, range from 0.065% to 0.185%.

You can open a Michigan 529 plan with $25, or $15 if you establish an automatic payroll deduction. Furthermore, the plan makes it easy to request eGifts. Friends and family can contribute directly toward your 529 plan account.

7. Maryland 529 Plan (Maryland College Investment Plan)

Even though the Maryland 529 Plan charges slightly higher fees than most of the plans on our list, an analysis by SavingforCollege ranked it among the five top-performing 529 plans in the country.

Total annual asset-based fees range from 0.19% to 0.64%.

Leading asset-management firm T. Rowe Price manages underlying funds in the plan’s portfolios. But all you need to open an account is $25. Moving forward, you can contribute up to $500,000 toward your account. And Maryland residents can deduct up to $2,500 in contributions from their state income tax per year ($5,000 for couples filing jointly).

One of your investment options includes a U.S. Treasury Money Market Portfolio designed for low-risk investors. But you can also contribute toward Enrollment-Based Portfolio options. These change their asset allocation automatically to become less risky as your child approaches the college years.

8. California 529 Plan (ScholarShare)

Even though the direct-sold California 529 plan doesn’t offer state-specific tax breaks, it received a 5/5 star rating from SavingforCollege. This website rates 529 plans each year. It made the top of the list based on performance. Well-established firm TIAA-CREF manages underlying funds in the plan’s portfolio.

The plan, which has a maximum contribution limit of $529,000, includes age-based, multi-fund, and single-fund portfolios as well as a guaranteed investment option. And the program manager keeps costs down. Total annual asset-based fees stretch from 0.24% to 0.41%. In fact, the menu contains one of the lowest non-guaranteed portfolio options in any 529 plan.

9. New York 529 Plan (New York’s 529 College Saving Program)

The New York 529 College Savings Program recently reduced the total annual asset-based fee on all its portfolios to 0.12%. The moves make the New York 529 plan one of the most inexpensive in the nation. In addition, New York families can deduct up to $10,000 from their state income tax each year.

And unlike most 529 plans, the program doesn’t charge additional fees for out-of-state participants. Your investment options include three age-based portfolios based on specific risk profiles. In addition, you can build your own investment mix using individual portfolios. These provide exposure to asset classes like stock funds, short-term reserves and mixes of multiple classes.

You can open a New York 529 plan with as small an amount of money as you’d like. And you can contribute up to $520,000. This is one of the largest 529 maximum contribution limits in the country. Furthermore, the New York 529 College Savings Program allows employers to set up payroll deductions toward employees’ 529 plan accounts at no cost to the company.

Bottom line

Investing in a 529 plan is a great way to start saving for your child’s future college education as soon as possible, and you enjoy some decent tax breaks, to boot. In addition, your child can still qualify for financial aid even if you’ve built a hefty 529 account balance over the years.

Almost all states sponsor at least one of these plans, but they’re not all great. The best 529 plans offer very generous 529 plan benefits, major tax incentives and high 529 plan contribution limits. Moreover, they provide a diverse investment menu. And no rule says you have to invest in one sponsored by your state. So make sure you shop around.

Tips on 529 Plan Investing

• If you’re looking for ways to invest in your family’s education, a financial advisor can help you create a financial plan. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Tax breaks are some of the strongest incentives for investing in a 529 plan. However, there are some 529 plan rules you must follow in order to make the most out of your savings. For instance, you have to use your withdrawals on 529 plan qualified expenses. Otherwise, you’ll face some major tax penalties.

Javier Simon, CEPF® is a banking, investing and retirement expert for SmartAsset. The personal finance writer's work has been featured in Investopedia, PLANADVISER and iGrad. Javier is a member of the Society for Advancing Business Editing and Writing. He has a degree in journalism from SUNY Plattsburgh. Javier is passionate about helping others beyond their personal finances. He has volunteered and raised funds for charities including Fight Cancer Together, Children's Miracle Network Hospitals and the National Center for Missing and Exploited Children.

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