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Maryland resident here.

We'll be opening some 529 plans for our kids (ages 4.5, 2.5, and 1), and I'm wondering how to determine if we're better off with the in-state plan or another state's plan.

We're planning to save a minimum of $70,000 for each child (although we may invest more heavily) to fund a mix of community college and off-campus living at in-state public schools. Of particular interest is NY's plan, as I like the expense ratio and Vanguard investment options. Some details:

MD:

  • Investments by TRowe Price
  • 0.81% expense ratio
  • $2500 tax deduction/kid (~5% state tax rate)
  • Past performance ~6.5% (I know this doesn't predict future returns)

NY:

  • Investments by Vanguard
  • 0.16% expense ratio
  • No tax deduction
  • Past performance ~8.5% (I know this doesn't predict future returns)

Thoughts on how to determine the preferable plan?

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I think it's hard to argue with a guaranteed ~5% savings on the portion that could be deducted, but to save 70k per child you'll be contributing far more than $2,500 per year.

So in that case I think I'd use Maryland's system for $7,500 per year to maximize the tax benefit, then go with New York's plan for the rest of your contributions each year for the better investment options.

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  • Interesting idea - I hadn't thought of that. (Although now that you bring it up, it seems like a very common sense solution). Thanks!
    – Jeff Levine
    Jan 15, 2017 at 11:28

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