As a follow up to my overview of 529 plans, I want to offer five tips to make sure you’re getting the most out of your accounts.

1.     Sign Up for Your State’s Plan: You should start with investigating your state’s 529 plan. Many states offer residents an income tax deduction for contributions made to the state plan. The deduction, if available, could make up for the some of the fees associated with the plan.  For example, Illinois allows up to a $10,000 deduction for individuals, and $20,000 for married couples. The reduction in taxable income could save a couple $750 a year. That’s in addition to getting tax-free growth from the account itself.

2.    Explore Other State Options: While the state income tax deduction is nice, you may find an out-of-state plan better suits your needs. Fortunately, you can sign up for another state’s plan, even if you’re not a resident of that state. In addition, the state sponsor’s plan doesn’t have any bearing on where the student needs to go to college. For instance, an Illinois resident can invest in the New York 529 plan that pays for a college in Georgia.  According to SavingForCollege.com, the top three performing plans at the end of 2014 were Tennessee, New York, and Michigan.  The site offers a nice comparison tool that allows you to analyze state plans side-by-side.

3.    Keep Track of Costs: No matter which state plan you choose, keep an eye on costs. I will never be able to say this too much…costs matter….a lot. So when you compare the plans, address all of the fees associated with the account – the enrollment fee, account maintenance fee, program management fee, and the expense ratios for the underlying investments. In addition, check that underlying investments provide broad and diverse exposure to the market.  A lot of the higher ranked plans have Vanguard and TIAA-Cref low-cost index portfolios.

4.    Need to Switch? Roll it Over:  When I reviewed my reader’s plan, I realized that his plan had higher management and account maintenance fees, despite not receiving any value from his advisor and being in an target-date investment.  While a good advisor can be worth her weight in gold, paying an advisory fee for no guidance seems pointless. If you find yourself needing to make a switch, you can roll over any or all of your 529 accounts from your current plan to a different 529 plan, once in any 12-month period. If you violate the 12-month rule, you must treat the transaction as a nonqualified distribution and pay federal tax and 10% penalty on accumulated earnings. You can get around the 12-month restriction, though, by naming a different family member as beneficiary of the 529 plan you are rolling into. Keep in mind, the plan sponsors should make the transfer in a plan-to-plan rollover.

5.     Make Savings Automatic:  With the costs of college outpacing inflation, you need to start saving early and often. Many plans allow funding online and automatic investing where you can set the amount and frequency of the recurring investment. Some employers offer an automatic deduction option as well. A word of caution though: your financial house needs to be in order – no consumer debt, emergency fund, adequate retirement etc.  – before saving for your child’s education.

Saving for college has never been more crucial. Save the most you can by picking the right 529 plan.