Does NJ’s 529 plan make the grade?

Q. I would like to save for my son’s college and I have a question for you. I reside in New Jersey and realize the state’s 529 plan is not the best to choose. Some choices I’m considering are the plans from Michigan, New York, Utah and Maine. Are there any more that should be on my radar?
— Dad

A. A 529 plan is a great way to start saving for your son’s college education.

Fortunately, college savers are not tied to the plans offered through their home state.

This is good news because not all 529 plans — such as the one offered in New Jersey — put families in the best place to maximize their college savings, said Bryan Smalley, a certified financial planner with RegentAtlantic in Morristown.

Smalley said the most effective 529 plans are the ones that keep costs low, investment options wide and are sensitive to reducing the market risks of the plans as a beneficiary draws closer to college age.

One of the best resources to compare the costs and investment options of 529 plans is SavingForCollege.com, which allows you to do a side-by-side comparison of the costs of these plans and gives you access to the 529 plan websites in order to compare investment options.

“When comparing costs, I would focus on direct-sold 529 plans as opposed to advisor-sold 529 plans, and within direct-sold 529 plans I would compare the average mutual funds expenses and the administrative fees of each state’s plan,” Smalley said.

In terms of investment options, Smalley said your should look for plans that offer a wider variety of investment options such as mutual funds that invest in cash, bonds, and U.S. and international stocks.

“Having different investments that invest in different parts of the global markets allow you tospread your risk out and actually increase your return over longer periods of time,” he said.

Lastly, Smalley said he favors 529 accounts that have tighter bands on their age-based investment portfolios (two-to-three years versus four-to-five years).

“As the beneficiary of the account gets closer to college age, the investments in the account shift toward more stable investments such as bonds and cash and away from more risky assets such as stocks,” Smalley said. “Having tighter bands helps manage the market risk of the account while at the same time not getting the account entirely out of stocks prematurely.”

And while NJ Best offers a small scholarship for those who are in the plan, that’s only if your student attends a New Jersey school. It’s a little too early to know where your child will end up.

We’ve looked more closely at New Jersey’s plan in the past, so take a look at these stories:

Should I choose NJ Best or another 529 plan?

Where NJ’s 529 plan ranks on fees

Email your questions to ask@njmoneyhelp.com.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.