The best way to save for college

Clark Behind The Headlines

From HLN’s Money Expert Clark Howard

I recently dug in and researched all the college savings plans available around the country so I could update the guide on my web site. And did that take a lot of time! But did I find a pleasant surprise. The plans known as 529 plans have gotten much better. Not all of them are better, but a lot of them around the country have improved.

If you’re familiar with 529 plans, you know that you can put money into them and if it’s used later for eligible college expenses, then all the earnings accumulated through the years are yours tax-free.

529 plans were growing like crazy earlier this decade. And then when the bottom fell out of the economy and the stock market, 529 plans just froze, essentially. They stopped growing and people stopped contributing to them. Because when you’re at a point in your life where you’re just trying to put food on the table, putting money aside in a college savings plan goes by the wayside, as it should.

My 529 guide went from the #1 most-visited section of my web site, to way down the list. There’s some sense that people are feeling a little more confident now, because more people are going to my 529 guide.

I said a lot of plans were getting better. So, what makes a 529 plan better?

Each plan has an annual fee for the manager of the money for your kids’ college. And those management fees have declined a lot since I revised my guide last year. It is now much easier for you to find a good plan.

The way Congress wrote the law is that states have to sponsor 529 plans. So, each state can sponsor one or more plans. In most situations, your money can go into any state’s plan. But if the state where you live has a good plan, you should put your money there because you may — if your state has an income tax — have a tax benefit for putting money into your state’s 529 plan. And remember, at the time you spend the money, it’s tax-free if it’s used for college expenses.

A single state may have several plans. But all of them could be junk. So in my 529 guide, I have links for you to the best plan available in each state. The only plans I recommend are commission-free plans.

If your state is not on my list, you should go with one of the Dean’s List with High Honors plans. The three best plans in America are sponsored by the states of Utah, Iowa and New York. Utah is my favorite of all the 529 plans in America. But again, if you live in a state that’s on my Honor Roll, go into your state plan. For the complete list, click here.

[Via http://tips.blogs.cnn.com]