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Fund Spy

Should You Shop Around for a 529 Plan?

Some states offer a tax benefit that outweighs their plan's investment fees, tempting investors to stay close to home.

529 plans appeal to investors by offering federal, and in some instances state, tax benefits. Whether the cumulative tax benefits of individual plans make one more attractive than another depends on an investor's circumstances.

A federal tax exemption on the growth and distribution of withdrawals that cover a beneficiaries' qualified education costs encourage saving for college. The potential tax-advantaged savings don't always stop there. Since college savers have no obligation to invest in their own state's plan, some states choose to entice residents to pick their home state's plan over other options by offering an additional state income-tax benefit. Whether that state income-tax benefit results in enough cost savings to merit staying in-state varies across the more than 80 plans available nationwide, and investors should to take a closer look at the possibilities.

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