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Special Report

529 Plans: Making a Good Thing Better

States are adding new incentives, but benefits still vary greatly.

Every state in the nation now offers a 529 plan, but unlike the citizenry, all plans are not created equal. If the Founding Fathers were investing for their children's education, in fact, they'd likely be aghast. Some states have residency requirements; some don't. Some plans allow participants to invest directly; others are exclusively broker-sold.

More importantly, investment options vary widely from plan to plan, which means that it pays to do your homework, just as you would when considering a mutual fund for any other investment-savings account, such as your 401(k) or an IRA. The same basic questions apply, after all. True, most 529 plans allow donors to choose between "static" and "age-based" portfolios. But the underlying funds in those portfolios will succeed (or fail) for all the usual reasons, including the tenure and stock-picking acumen of the management team, the team's ability to craft a careful balance between risk and reward, and the plan's price tag.