529 plans have many benefits, ranging from the fact that the owner, not the beneficiary controls the assets to the fact that earnings grow tax free from federal taxes and withdrawals for qualified education expenses are free from federal taxes through 2010. However, one reason many investors have not more readily utilized 529 plans is due to the extreme difficulty in understanding, calculating and comparing total plan expenses. Many of these plans’ expenses and cost structures are not very transparent. Furthermore, for those plans whose expenses and total costs are not transparent, there is usually a reason! Although the various expenses involved in 529 plans can get confusing, we’ll attempt to lift the veil of secrecy. We will not, however, attempt to also analyze the potential tax benefits some states offer residents who invest in their own state’s plan (although this is not an issue in Texas due to the fact that we do not have a state income tax), as this is a further complicating issue.
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