Steve DeCesare lends advice to GoodCall.com about why 529 Plans Aren’t Created Equal: What You Need to Know Before You Invest

With college costs on the rise, families across the country are turning to 529 savings plans to sock away money. But these plans aren’t created equal, which means you have to shop around before choosing one to invest in.

Families facing the prospect of thousands of dollars in college costs are looking for ways to save, and a popular one is through a 529 savings plan. Offered by most states and private financial institutions, 529 plans allow investments to grow tax-free, without being taxed when the money is used for college.

While the tax advantages of these plans are very appealing to families, the investments are not without risks. As many learned during the stock market crash of 2008, even with a seemingly safe investment vehicle, you can lose money. “With the last market crash, 93% of 529 plans tracked by Morningstar fell in value,” says Pamela Yellen, president and founder of Bank on Yourself, a company that helps people reach their financial goals. “Almost one-third lost at least 40%.”

Performance matters a lot with any investment. But when it comes to choosing a 529 savings plan, it’s not the only thing you should consider. After all, not every plan is created equal – nor are the returns you can expect out of them.

You should treat 529 investments the same way you would any other investment, according to Travis Sollinger, director of financial planning at Fort Pitt Capital Group. “What are the forms of investments available and what are the costs?” are two major questions families should consider, he says.

Some state plans have perks

Investors can’t protect themselves from another stock market crash. But they can choose a 529 plan that gives them the most benefits. That’s why experts say your first stop when shopping around for plans should be with your state. “With a state plan, there could be a tax break, scholarship or some matching grant for contributions,” says Stephen DeCesare, president of DeCesare Retirement Specialists. “You don’t want to give them up unless the other boxes aren’t checked. Read more.