California 529 comments

By Wendy Mihm August 19, 2011

Aaaahhh California! Endless beaches and sunny days, the Golden Gate Bridge, the Santa Monica Pier, skiing in Tahoe, fine wines in Napa, movie stars, palm trees, little dogs and giant sunglasses.

But what about the California 529?

There is bad news and good news about 529 plans in California.

First, the bad news.

No State Tax Deduction for 529s in California

If you’ve read “Top 529 Plans,” you may have noticed the glaring omission of California on the list of states where 529 plan contributions are tax deductible.  That’s right: California residents cannot deduct the contributions they make to their children’s (or anyone’s) California 529 plan. Said another way, if you are a California resident, the money you put into the 529 plan each year is not tax-deductible.

Hella uncool, right?

But that point is very important to note as you research 529 college savings plans. It means you can shop nationally for things like:

    • Best (lowest) fees.  This is extremely important – high fees can seriously eat into your investment over time.  You should be paying below 1% annually.
    • A portfolio mix that suits your investment goals and profile, meaning either aggressive, moderate or conservative.  You can also elect a portfolio that is age-based, which means the investments start off aggressive and then get more conservative as your child nears college-age, in order to protect principal (I love these!).  If you need help identifying your investment profile (it’s important to know), you may wish to subscribe to Level 3 of our free weekly email series (it’s fun!).
    • Top-rated customer service
    • User-friendly website (also a nice thing to have, since you may be checking on the performance of your kids’ portfolios fairly often.  Or that could just be me…)
  • Now the good news!

    California 529 Plans: From Strong to Stronger

    California’s college savings plan is called the “ScholarShare” program.  Earlier in 2011, the state board that oversees ScholarShare selected TIAA-CREF, which is a large manager of retirement accounts and also 529 plans for some other states, to take over management of the program from Fidelity.  The actual hand-over is due to take place in November, 2011.

    According to a press release, the change should result in two positives for participants in the ScholarShare program:

    • Lower overall fees.
    • A wider variety of investment options.  Currently, under Fidelity, the California 529 allows for investments within Fidelity’s portfolio only.  But when the account moves to TIAA-CREF, they will allow you to also choose from TIAA-CREF, T. Rowe Price, Pimco and Dimensional Fund.
  • And as far as investments are concerned, it’s always nice to have some options to choose from – especially when you’re choosing from such a strong set.

    So if you’re looking for 529 plans in California, you’ve got some shopping to do.  Your main job will be to watch out in November to see how low the fees go on TIAA-CREF’s new ScholarShare’s new option, and compare them to other plans available nation-wide.  Why?  Again, because you don’t get a tax break by staying in-state, you might as well shop around to find the best of all the features listed above (especially the lowest fees). 

    Now grab your giant sunglasses, toss your dinky dog in a bag, and get a move on!


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