By BankingMyWay.com Staff
Since 529 college savings plans were first introduced under the Small Business Job Protection Act of 1996, millions of accounts have been created.

These state-run, tax-deferred accounts allow parents to save for future education much like they save for retirement in a Roth IRA. The money you put in continues to grow tax-deferred and it can be withdrawn tax-free to pay for qualified educational expenses. Contributions to a 529 plan can be made by anyone, but there are maximum limits established per beneficiary.

There are numerous different 529 plans to choose from, and they are not all created equal. Choosing the right plan requires some investigation. Where you live, how old your child is and how much risk you can tolerate should all factor into the decision.

Here are some tips for how to choose a 529 plan:

1. Consider costs: Look for plans that have the lowest costs (around 1%). Plans can charge maintenance fees, annual fees, management fees and transaction fees. High-cost plans can eat away at your returns.

2. Compare performance: Like any similar investment, returns will vary depending on the choices made within the plan. Look at the plan’s performance history compared with others in recent years. You can compare plans and see the top performers at SavingForCollege.com.

3. Evaluate in-state plans: Some states permit tax deductions for 529 contributions to in-state plans. This is a great incentive if you can also find a low-cost plan with good performance. Because 529 plans do not have residency restrictions, however, you can shop around among other state plans for better options.

4. Compare investment choices: Investors choose how the money in a 529 plan is allocated according to their risk tolerance. Some plans offer more options for investors to choose from.

5. Examine any restrictions: Some plans place restrictions or limitations on future adjustments. For example, there may be limitations on whether you can change beneficiaries or roll over money from other education savings accounts.

Even after you have chosen and enrolled in a 529 plan, you should continue to evaluate how the plan is working for you. Monitor your plan’s performance to make sure it is keeping pace with other 529 plans. If your plan isn’t living up to your expectations or you discover one that you think would work better for your situation, you are allowed to switch plans once every 12 months.

Some reasons you might want to switch plans include:

1. Lower costs: If you are paying high costs to manage your plan, you might be able to do better elsewhere. Similarly, if your plan is enrolled through a broker or advisor, you may be paying high commission and sales fees. You can eliminate these fees by switching and investing directly with the plan’s sponsor.

2. Better performance: The losses in the market have hit some 529 plans harder than others. If your plan is one of those, it may not be managed well. Your money might do better in the future if you switch to another plan.

3. New management: If your plans managers are changing, you should investigate the new management teams’ record. Switch if you don’t like what you see.

4. Better options: If you don’t like the investment choices or other features of our current plan, you may find another plan more tailored to your needs.

5. Tax benefits: If you move and no longer qualify for the in-state tax deduction, you may want to switch plans.

To make the switch you can either use a rollover contribution form from your new 529 plan or a rollover distribution form from your current 529 plan.

— For more ways to save, spend, invest and borrow, visit MainStreet.com.