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The Best 529 College-Savings Plans

You don't have to open a 529 college-savings plan in your home state. A total of 49 states and the District of Columbia offer 529s (Wyoming has adopted the Colorado plan as its own, and Washington offers only a prepaid plan).

Most states let you choose between accounts that you invest in directly and portfolios that you purchase only through advisers or brokers. More than half of 529 investors buy broker-sold plans, which carry sales charges and offer more investment options. But you can find an adequate selection in a direct-sold plan. And its lower expenses mean that more of your money will go toward building your college fund.

Factor in state tax breaks, which vary widely. Some states allow you to deduct your entire 529 contribution from your state income tax; others limit the deduction to a few thousand dollars or less. Several states let you deduct excess contributions in future years, but they differ on how much you can carry over. A few states place income restrictions on who can benefit from deductions for 529 contributions. Check your state's tax rules before you make a decision.

But if your state offers an income-tax deduction for your 529 contribution, it makes sense to go with your state's plan. The tax break will trump lower fees in an out-of-state program. If your state doesn't offer a tax break -- or if you live in Kansas, Maine or Pennsylvania, which give a tax break no matter where you invest -- consider stashing your college savings in one of the following plans:

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Best for low fees. If low investment costs are your primary concern, take a look at the Utah Educational Savings Plan Trust. The plan serves up a menu of nine Vanguard index-fund portfolios and charges only 0.38% per year for its most expensive option. (The plan also levies a fee of $4 per $1,000 of your account balance up to a maximum of $20 annually.)

Best portfolios of underlying funds. The pre-fab portfolios offered by 529 plans are only as good as their underlying mutual funds. That's why we like Maryland College Investment Plan, which uses a great mix of funds from T. Rowe Price. Maryland cut its annual fees this year, and the plan's most expensive option costs just 0.99% annually.

Best plan for conservative investors. The Michigan Educational Savings Program, run by TIAA-CREF, is ideal for investors who shy away from putting their college savings into the stock market. The plan has a savings option that guarantees principal and a minimum annual interest rate based on a Treasury note index. That option doesn't charge an annual fee. The plan also offers portfolios of TIAA-CREF mutual funds that are tilted more toward bond funds than most other 529 plans. Those options cost a very low flat fee of 0.45% annually.

Best mix of investment choices. For do-it-yourself investors who want to build their own portfolio, the College Savings Plan of Nebraska offers a selection of 20 funds from American Century, Fidelity, PIMCO and Vanguard. The wider assortment does come with higher fees. The most expensive fund option costs 1.64% annually, and there's a $25-per-year maintenance fee for all accounts.

Best adviser-sold plan. If you feel more comfortable using an adviser, ask about the Virginia CollegeAmerica plan. You'll pay more in fees than if you bought a plan directly, but your adviser can craft a solid portfolio with 22 top-notch funds from American Funds.

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