DISB Reminds Investors to Do Their Homework Before Investing in 529 College Savings Plans

"Regardless of how the plan is purchased, investors should have a basic understanding of the plan's benefits, costs and tax implications," Hampton opined. To help investors select the most appropriate college savings plan, the North American Securities Administrators Association (NASAA) suggests four key questions investors should ask their financial professional before investing in a 529 College Savings Plan.

1. What are the plan's tax implications? Tax treatment of college savings plan contributions, earnings, and withdrawals varies from one state to another. A number of states allow residents who participate in their own state's plans to claim a partial or full state income tax deduction on contributions. In addition, many states provide residents with a state tax break on money taken out of 529 plans to pay qualified college expenses. Make sure you understand your state's tax treatment of contributions to, and earnings distributions from, both in-state and out-of-state 529 plans.
2. What are the plan's expenses? All College Savings Plans have associated costs, which can affect your investment return. Plans sold by financial professionals often cost more than plans purchased directly from the state. These extra costs generally stem from sales loads or other fees associated with share classes, annual distribution fees, including fees used to compensate the financial professional. You are entitled to a complete list of the costs associated with the plans - be sure to ask for it.
3. How are you compensated for these plans? Ask whether the adviser or broker receives a commission from any of the plans he or she is recommending. You also should be sure to ask about the plans offered by your home state to ensure that the plan you ultimately select best suits your needs.
4. Does an out-of-state plan's performance or costs outweigh tax benefits of a home state plan? No two plans are exactly alike, and in some cases, if might make sense to consider an out-of-state plan. For example, if your in-state plan offers a tax deduction, but is saddled with high fees and poor performance, an out-of-state plan with lower fees and stronger performance may be the better choice.

"Before selecting any plan recommended by a financial professional, it is always wise to do your own research to double-check his or her advice," Hampton advised.

For more information about College Savings Plans, NASAA, along with the College Savings Plan Network and the Investment Company Institute, offers a free brochure, "A Guide to Understanding College Savings Plans." The brochure is available on the NASAA website.  Organized in 1919, NASAA is the oldest international organization devoted to investor protection.