Is the 529 Plan the Most Effective College Savings Plan?

I've been getting a ton of questions lately about my 529 plan decision. As you know, with the arrival of little Miss PT, college savings has been a hot topic around here. With the start of the school year, people are starting to think more about saving for their child's future education. Here's a recent question I received from a friend and reader:

“What do you think the most effective college savings plan for our kids is?  A 529?  I would love your input.  Hope you guys are well.  I'm sure little Miss PT is growing like a weed. Keep it up, man!”

My response, which gives you some insight into what I've learned about 529s, went something like this:

Just Start Now

I heard some advice once about college savings that sounded pretty good: “just start now.”

In other words, don't get too caught up in the different kinds of plans/accounts. Just pick something and go for it. The truth is, a majority of folks out there wait till it's too late to start doing anything. And it's not because they didn't have the money. It's because they thought about it a couple of times over the years and never acted. Either because they were confused by the choices, or too lazy to set it up. Had they just started an automatic savings withdrawal to a CD or simple savings account they'd be better off than where they find themselves.

Honestly, though, I'm currently one of these people. I haven't decided on a specific place to stash my college savings. Although, I think I'm close. I really like what I hear about the Ohio College Advantage 529 Plan. The fees are low, fund options high (they have Vanguard funds), and you can use the proceeds in any State, not just Ohio.

Local and Other Considerations

You live in Texas and so our situation is pretty good. You don't pay state income tax. Therefore, there are no college plans that are particularly advantageous for Texans, unless you are dead set on sending your kid to a Texas school. In which case, there are prepaid plans that might be better for you. Bottom line, you're freer to look at another State's plan. Most plans will let you participate in their plan and use the funds anywhere.

That being the case, the next thing you need to worry about is fees, flexibility, and fund options. CNN Money, Kiplinger, and the like are always ranking 529s based on these factors. Find one of those lists and narrow down your choices. Then pull the trigger and start saving.

There are some other options besides 529s, but I don't see any specific reason for you to choose them over the 529.

What to Invest In

Once you have the 529 plan set up, you'll need to decide what to invest in. Most plans offer target-date or age-based funds. These fund accounts get more conservative as your child ages. That way, when your child is 16 and the market crashes, half your investments won't be taken. By then, you'll be in more conservative investments.

My Game Plan

So, here's what I'll be doing asap:

  • Choose a 529 Plan and Open an Account
  • Start Funding a Target Date Fund Within the 529

Retirement Before College Savings

Just a quick note to add that I think it's important to take care of your retirement needs prior to considering college savings. Not to say you need to have your retirement fully funded before you save for your kids. You just need to be making the maximum contribution needed to help you achieve your retirement goals and then think about college savings. This is just my view. You may take a different stance.

About Philip Taylor

Philip Taylor, aka "PT", is a former practicing CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of FinCon, the conference and community dedicated to helping other financial influencers and brands. He created this website back in 2007 to share his thoughts on money, hold himself accountable, and to meet others passionate about moving toward financial independence.

PT uses Personal Capital to keep track of his financial life. This free software allows him to review his net worth regularly, analyze his investments, and make decisions about his financial future.

PT keeps a portion of his emergency fund in Betterment, the automatic investing tool that makes investing super simple. Betterment focuses on what matters most: savings rate, time in the market, investing costs, and taxes. PT recommends this service to anyone looking to get started investing for themselves.

All the content on this blog is original and created or edited by PT.


  1. Jason @ One Money Design says:

    PT, good information and point regarding contributing the maximum to retirement before contributing to college savings. I think that’s a critical strategy.

  2. While you are lucky not to incur State Income Taxes…I am in New York (one of the highest income tax states out there) and starting a NY 529 you get up to a $3,000 deduction.