When choosing a 529 college savings plan, you’ll often have to weigh any in-state benefits with the superior investment options from an out-of-state plan. Every state seems to have their own unique combination of tax deductions and/or matching grants. Morningstar ran an analysis comparing the home-state tax benefits for a hypothetical family saving for college.
We selected a hypothetical family of four that earns $50,000, or close to the national median household income. In our scenario, the family has two children and contributes $100 per month to each child’s 529 account, for a total contribution level of $2,400 per year. We looked at the state tax benefits as of October 2014 and calculated the dollar value for each plan.
Here is a chart of their results (click for original image):
Keep in mind that tax benefits can change, as can the quality and cost of each state’s 529 plan. An expensive plan can switch administrators and transform into a cheap plan the next year. A cheap plan usually stays that way, although it might get a little more expensive. Some states let you grab the tax deduction and then immediately roll over the assets to any outside plan; other states “recapture” the tax deduction if do you that.