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By Christine Benz | 04-23-2009 05:58 AM

States: The 529 Flaw

Though 529s are often investors' best way to save for college, state involvement creates some downsides. (04/23/09)

Christine Benz: Hi, I am Christine Benz from Morningstar. We've just come out with our annual study of the Best and Worst 529 Plans, and I'm here today with the study's author Greg Brown. Greg thanks for being here.

Greg Brown: Thank you.

Christine Benz: Now, you've studied 529's extensively, and it's a confusing landscape because states are involved. States administer the plans. And you may also receive a state-tax deduction if you had opted for your in state plan. But, it's a confusing landscape, and its sounds like that's one reason you have some concerns about states being involved and states running these plans.

Greg Brown: Yeah, that's true, I think especially for newcomers. People that initially look into the 529's, they might question: "Why are states involved? Does that mean that I can only invest in my states plan? Does that mean my child can only go to the state where I've invested in?"

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