A recent report ranks two local college savings plans in Maryland and Virginia among the top five plans in the country for parents setting aside money for their children’s tuition.
The 529 college savings plans are state-sponsored accounts that allow parents to save for their children’s educations ahead of time. The plans keep parents from paying taxes on the account’s earnings, and often allow them to prepay for tuition at a state institution at current rates.
The report, released last week by Morningstar Inc., a Chicago-based research firm, cites Virginia CollegeAmerica and the Maryland CollegeInvestment Plan as two of the best plans in the country.
Virginia CollegeAmerica earned praise for offering a variety of investment approaches through the 22 different funds within its program.
“We’ve really have always tried to make our programs as straightforward as possible and applicable to many different people with busy lives,” said Virginia College Savings Plan Executive Director Diana Cantor.
The Maryland College Investment Plan made the top five because it recently eliminated its enrollment fee and cut its program management fee significantly.
Parents who use the plan target the date they expect their children to go to college. As the date nears, money management becomes more conservative, said Tom Kazmierczak, senior product manager for 529 savings plans for T. Rowe Price.
Both Maryland and Virginia offer significant tax breaks for parents investing in 529 plans. In Virginia, each parent can open an account and deduct $2,000 per child; in Maryland, they can deduct $2,500.
States offer between one to a handful of plans to choose from: Maryland has one option, and Virginia offers two, with a third plan called CollegeWealth to come in May.
CollegeWealth is a partnership between more than 50 Virginia banks that will target families not used to saving for school or dealing with investments, Cantor said.
The Morningstar report also cites five plans to avoid, though none are from the D.C. area. Those plans were criticized for exorbitant fees, limited options and poor tax incentives.
