It is never too early to think about saving for college, and a 529 savings plan can help you do just that.

No other savings or investment account offers the tax breaks that a 529 college savings plan offers, which means that every dollar you contribute can cover a greater share of college costs. That’s especially helpful considering the average net price of a private nonprofit university came in at $26,740 for the 2017-18 school year, and the cost of college is on the rise.

But with almost every state offering a 529 savings plan, and with many offering more than one, it can be challenging to figure out which plan is right for you.

If you’re already well-versed in this savings tool, you can see our roundup of the best options here:

The truth is that contributing to a 529 savings plan isn’t always the right move. You may be better off using a different college savings account or even focusing on other financial responsibilities first.

This guide will help you sort through all of that. You’ll learn what a 529 college savings plan is, how it works, how to choose the right plan for you and alternatives you should consider.

What is a 529 college savings plan and how does it work? A 529 college savings plan is an investment account that offers a number of tax breaks when the money is used for qualified education expenses: Contributions are made after taxes, though there are a number of states that allow either a deduction or a credit for state income tax purposes.

Your money grows tax-free while it is in the account.

Money can be withdrawn tax-free for qualified education expenses, which typically includes tuition at any eligible school from elementary onward, as well as fees, books and room and board at an eligible higher education institution. If you withdraw the money for any other type of expense, the earnings will be taxed and subject to a 10% penalty. 529 savings plans offer a preselected set of mutual funds and your account balance will rise and fall based on your contributions and the performance of your chosen investments. Most 529 savings plans also offer age-based investments that provide an all-in-one portfolio and automatically become more conservative as your child approaches college. 529 savings plans are administered by states, with every state except for Wyoming offering at least one plan. However, you do not have to use your home state’s plan, and in some cases, you may be better off going elsewhere. Regardless of which 529 savings plan you choose, you can withdraw the money tax-free for expenses incurred at any eligible school in any state, and even for certain international schools. Anyone can open a 529 savings plan and name anyone else, including himself, as the beneficiary. You can also change the beneficiary later on, as long as the new beneficiary is related to the old beneficiary. In short, 529 savings plans allow you to save and invest for future education expenses in a tax-advantaged way.

Prepaid tuition plans vs. savings plans In addition to 529 savings plans, some states also offer prepaid tuition plans that may be advantageous in certain situations. Prepaid tuition plans allow you to buy units that each typically cover 1% of one year’s worth of college tuition at a public, in-state university. This essentially allows you to lock in the current cost of college, protecting you against the risk that tuition costs will continue to rise. “The huge part of a prepaid tuition plan is that it’s guaranteed,” said Angie Furubotten-LaRosee, fee-only CFP and founder of Avea Financial Planning. “With a traditional 529 plan you have to worry about market fluctuations, and with these you don’t.” There are downsides, though. The biggest of which is that while you can usually get your money back if your child wants to go to a private college or go out of state, the return is typically much smaller than what you would get from attending an in-state public school. This is in contrast to a 529 savings plan, which allows you to use the money you’ve earned at any eligible institution. “Prepaid plans are ideal for parents who have a good idea of where their child will attend college and who are willing to give up investment flexibility to lock in those costs,” said Kathleen Boyd, CFP and wealth adviser at Navigoe. “However, if you’re uncertain about your child’s future college plans, then a 529 savings plan may be the ideal option.”

Benefits of a 529 savings plan 1. Tax breaks The tax breaks are the main advantage of 529 savings plans over other savings and investments accounts. The growth and the ability to withdraw the money all tax-free for qualified education expenses mean that every dollar you contribute can multiply faster and cover a greater portion of your education expenses. And if you live in one of the states that offers a state income tax break for contributions, you can potentially afford to make a bigger contribution without affecting your monthly budget, allowing you to get an even bigger head start. “If you are in a state that offers good benefits, and some states even offer matching funds, it really is the right choice at that point because you aren’t going to get those benefits from any other option,” said Nannette Kamien, CFP and principal of Inspiration Financial Planning, a fee-only financial planning firm with expertise in helping families prepare for college financially. 2. High contribution limits If you’d like to save a lot of money for education, a 529 savings plan will allow you to do it. There is no annual contribution limit, though contributions are subject to gift tax rules, which means that you can effectively contribute $15,000 per year, per child, without exceeding the 2018 gift tax exemption. That limit is applied per donor, meaning that parents can combine their limits to contribute up to $30,000 per year, per child. The tax code also allows you spread excess contributions over a 5-year period, meaning that as a couple, you could potentially contribute up to $150,000 in a single year without any gift tax consequences. Most 529 savings plans do have lifetime contribution limits, but those limits are very high. For example, New York allows you to contribute up to $520,000 to any single beneficiary, and Utah allows up to $446,000 per beneficiary. Additionally, there are no income restrictions on contributions, so anyone can take advantage of a 529 savings plan no matter how much money you make. 3. Mindset and accountability One of the biggest benefits of contributing to a 529 plan is that it establishes saving for college as a real goal with progress that can be tracked along the way. “Just having the 529 plan in and of itself solidifies that it’s an important priority for you and your family,” said Furubotten-LaRosee. “It’s now a budget item, it’s identified as money that’s earmarked for college, and I think that setting that habit is half the battle for a lot of people.” 4. Potential for long-term returns By offering mutual funds that are invested in the stock and bond markets, 529 savings plans allow you to participate in the long-term, compounding returns that those investments offer. This can be especially powerful if you start when your child is young. “Families who can invest over the long term are prime candidates for 529s,” said Boyd. “The earlier you start, the more time you have to take advantage of compound returns the markets provide over time.” 5. Low impact on financial aid Many people are hesitant to save for college because of the potential impact on financial aid, but 529 savings plans have a relatively low impact. As long as the account is held in a parent’s name, only up to 5.64% of the money in a 529 savings plan will be counted on the FAFSA. For example, if you have $100,000 in your 529 savings plan, only $5,640 will be considered for financial aid purposes. In other words, there’s very little penalty for having money in a 529 savings plan. And the benefits of saving the money ahead of time will almost always outweigh any small decrease in financial aid. 6. Ability to change beneficiaries 529 savings plans allow a reasonable amount of flexibility when it comes to changing the beneficiary of the funds. You are allowed to change the beneficiary as often as you like, and the only restriction is that the new beneficiary must be a family member of the old beneficiary. For the purposes of 529 plans, “family members” include siblings and stepsiblings, children, stepchildren, and grandchildren, parents, grandparents, nieces, nephews, first cousins and even in-laws. All of which means that if the money isn’t needed for the original beneficiary, you can simply use it for another family member.

Pitfalls of 529 savings plans 1. Taxes and penalties if not used for education The biggest downside to using a 529 savings plan is that if you withdraw money for anything other than qualified education expenses, the earnings will be subject to taxes and a 10% penalty. This is one reason to be careful about over-contributing, and also to not contribute money that may be needed for other financial goals. “That’s where that overarching financial plan comes into play,” said Furubotten-LaRosee. “You can always use other vehicles, like a Roth IRA, that come with more flexibility.” 2. Investment options can be narrow and confusing Each 529 plan offers its own preselected set of investment options, and those options vary widely in terms of what they invest in and how much they cost. Sorting through all of those options and making the best choices for your needs can be difficult. “Sometimes I see that parents are afraid to really invest the money and they don’t understand what the different investment options mean,” said Kamien. “Sometimes they get stuck in investments that are higher cost, and that really eats into the earnings that they could have gotten.” Kamien said that she encourages people to look for “age-based index” options. These funds provide an all-in-one portfolio that automatically gets more conservative as your child approaches college, and they build the portfolio with index funds, which are generally low cost and have been shown to outperform actively managed funds the majority of the time. 3. Other financial responsibilities may be more important While saving for college is a great goal, it’s often a good idea to handle other financial responsibilities first. This is especially important to consider before contributing money to a 529 savings plan because of the taxes and penalties on nonqualified withdrawals. “I certainly would caution a parent or grandparent against sacrificing their own financial goals like saving for an emergency fund, paying off debt or retirement plans to contribute to a 529 plan,” said Boyd. “Saving for education is very important, but it’s also a luxury and a privilege for your children, and it shouldn’t come above your own financial security.”

How to compare 529 savings plans When it comes to choosing a 529 savings plan, start by looking at the potential tax breaks offered by your home state’s plan, said Fred Amrein, a college funding expert and the founder of EFC Plus. “You need to understand your in-state plan first, and if the beneficiary is in another state you need to understand their state’s plan next,” Amrein said. “In some cases, it may be more beneficial to gift the money to the beneficiary or the beneficiary’s parents and let them contribute the money.” Even if your state does offer tax breaks, it’s not a given that your home state’s plan is the best option. There are a few more major variables you should consider as you compare 529 savings plans. Here are the criteria we used to construct our list of best 529 plans. Out of state We evaluated each 529 savings plan from the perspective of an out-of-state resident. That means that state income tax breaks were not considered and that any 529 plans that are unavailable to out-of-state residents were ruled out. Fees Research has shown that cost is the best predictor of future investment performance, with lower costs leading to better returns. For that reason, we preferred 529 plans that minimized both investment and administrative fees. We also filtered out adviser-selling 529 plans, which are specifically designed to be sold and managed by financial advisers and have higher fees in the form of commissions and management fees. Given that financial advisers can also advise on 529 plans that are sold directly to the consumer, and therefore cost less, we limited our search to those direct-sold plans. Investment options Investment portfolios built with index funds have been shown to outperform actively managed portfolios 80%-90% of the time, and we therefore only included 529 savings plans that offer index funds. We also limited our list to 529 savings plans that offer age-based portfolios constructed with index funds, since these all-in-one portfolios simplify the investment process and automatically decrease your investment risk as your child nears college age. Finally, we preferred 529 savings plans that offered access to individual index funds that allow investors to build custom portfolios if they so choose. Minimum investment Finding room in your budget for college savings can be difficult, so we did not consider any 529 savings plan that required a significant minimum investment. None of the plans listed below require more than a $50 initial investment. Other features While most 529 savings plans offer most of the same basic features, we did consider additional features offered by certain plans that may be helpful for some investors.

The nine best 529 savings plans Currently, 49 states and Washington, D.C., offer 529 plans (Wyoming is the outlier). We reviewed all 61 of them (some states have multiple) based on the criteria above to determine the best 529 savings plans, no matter where you live. The plans are presented in alphabetical order and do not reflect any kind of ranking. Fidelity Arizona College Savings Plan Arizona’s College Savings Plan is managed by Fidelity, just like Delaware, Massachusetts and New Hampshire, which also appear on this list. Each of these states offers essentially the same plan.The index funds are high quality and low cost, and there are no other significant fees, though the presence of higher-cost actively managed funds could lead some people to pay more than they have to. Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.

Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.

$15 with enrollment in automatic contributions. $50 otherwise. Other features: None of note.

None of note. Website:https://www.fidelity.com/go/529-arizona/overview California ScholarShare 529 Managed by TIAA-CREF, California offers a selection of both index funds and actively managed funds. The lineup of passive age-based funds and individual index funds is strong. Investment options: Age-based portfolios constructed with TIAA-CREF index funds, as well as access to individual TIAA-CREF index funds, if you’d like to customize your portfolio.

Age-based portfolios constructed with TIAA-CREF index funds, as well as access to individual TIAA-CREF index funds, if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.11%-0.17% per year. Individual index funds range from 0.08%-0.20% per year. There are no account maintenance fees.

Age-based index funds range from 0.11%-0.17% per year. Individual index funds range from 0.08%-0.20% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $25 otherwise.

$15 with enrollment in automatic contributions. $25 otherwise. Other features: None of note.

None of note. Website:https://www.scholarshare529.com Delaware College Investment Plan

Delaware’s College Investment Plan is managed by Fidelity, just like Arizona, Massachusetts and New Hampshire. These states offer essentially the same plan. Delaware’s College Investment Plan is managed by Fidelity, just like Arizona, Massachusetts and New Hampshire. These states offer essentially the same plan. The index funds are high-quality and low-cost and there are no other significant fees. The plan does offer higher cost actively managed funds, which could lead some people to pay more than they have to. Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.

Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.

$15 with enrollment in automatic contributions. $50 otherwise. Other features: None of note.

None of note. Website:https://www.fidelity.com/go/529-delaware/overview Illinois Bright Start Direct-Sold College Savings Program The index age-based funds use Vanguard mutual funds with some of the lowest fees offered by any 529 savings plan. Even the higher-cost “multi-firm” age-based funds cost less than most actively managed funds offered by other plans. Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds and DFA funds — a highly respected group of mutual funds that are typically only available through financial advisers — if you’d like to customize your portfolio.

Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds and DFA funds — a highly respected group of mutual funds that are typically only available through financial advisers — if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.12%-0.15% per year. Individual Vanguard index funds range from 0.10%-0.18% per year. There are no account maintenance fees.

Age-based index funds range from 0.12%-0.15% per year. Individual Vanguard index funds range from 0.10%-0.18% per year. There are no account maintenance fees. Minimum initial investment: None

None Other features: None of note.

None of note. Website:https://www.brightstartsavings.com College Savings Iowa Every investment offered within Iowa’s 529 savings plan is managed by Vanguard and costs just 0.20% per year. And with a strong lineup of both age-based portfolios and individual mutual funds, you have plenty of room to personalize your investment plan. Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio. Fees: Every investment option costs 0.20% per year. There are no account maintenance fees.

Every investment option costs 0.20% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $25 otherwise.

$15 with enrollment in automatic contributions. $25 otherwise. Other features: None of note.

None of note. Website:https://www.collegesavingsiowa.com Massachusetts U.Fund College Investing Plan Massachusetts U.Fund College Investing Plan is managed by Fidelity. The plan is essentially the same as Arizona’s, Delaware’s and New Hampshire’s. It offers high-quality, low-cost index funds with no other significant fees, though the presence of higher cost actively-managed funds could lead some people to pay more than they have to. Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.

Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.

$15 with enrollment in automatic contributions. $50 otherwise. Other features: None of note.

None of note. Website:https://www.fidelity.com/529-plans/massachusetts New Hampshire UNIQUE College Investing Plan New Hampshire’s UNIQUE College Investing Plan is managed by Fidelity, just like Arizona, Delaware and Massachusetts. Each of these states’ plans are on this list and are basically the same. New Hampshire’s plan offers high-quality, low-cost index funds with no other significant fees. However, the plan offers higher cost actively-managed funds, which could lead some people to pay more than they have to. Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio. Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.

Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees. Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.

$15 with enrollment in automatic contributions. $50 otherwise. Other features: None of note.

None of note. Website:https://www.fidelity.com/529-plans/new-hampshire New York’s 529 College Savings Program Like Iowa, New York’s 529 College Savings Program offers only Vanguard index funds and index age-based funds, and in this case, the cost of each fund is even lower at 0.15% per year. If your priority is minimizing fees and accessing Vanguard funds, this is likely the plan for you. Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio.

Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio. Fees: Every investment option costs 0.15% per year. There are no account maintenance fees.

Every investment option costs 0.15% per year. There are no account maintenance fees. Minimum initial investment: $0.

$0. Other features: None of note.

None of note. Website:https://www.nysaves.org Utah my529 Utah’s my529 offers possibly the most noteworthy set of features of any 529 savings plan: You can create your own age-based portfolio from the underlying funds offered by the plan, which include Vanguard index funds as well as DFA funds that are typically only offered by financial advisers. If you are working with a financial adviser, you can give him or her access to your 529 plan in order to manage your investments. The fees are slightly higher than the other 529 savings plans listed here — though they are still very low — but the investment capabilities are second to none. Investment options: A wide variety of age-based portfolios, Vanguard index funds and DFA funds.

A wide variety of age-based portfolios, Vanguard index funds and DFA funds. Fees: Age-based index funds range from 0.169%-0.202% per year. Vanguard individual index funds range from 0.22%-0.40% per year and DFA funds range from 0.37%-0.72% per year. There are no account maintenance fees.

Age-based index funds range from 0.169%-0.202% per year. Vanguard individual index funds range from 0.22%-0.40% per year and DFA funds range from 0.37%-0.72% per year. There are no account maintenance fees. Minimum initial investment: $0.

$0. Other features: Customized age-based portfolios and financial adviser access.

Customized age-based portfolios and financial adviser access. Website:https://my529.org

How to enroll in a 529 savings plan Once you know which 529 savings plan you want to use, it’s time to open an account and make your first contribution. And while every plan will have a slightly different process, there are a few steps that are likely to be similar across the board: Have the necessary information ready for the account owner: Social Security number Birth date Mailing address Physical address Bank account number and routing number for making contributions Have the necessary information ready for the beneficiary Social Security number Birth date Mailing address Physical address Read the program description, which can be found on the 529 plan’s website Choose an investment strategy. You can review the options on the 529 plan’s website and in the program description. Start the application process online or submit the appropriate paperwork.

How to use 529 plans to pay for K-12 private education The recently passed Tax Cuts and Jobs Act expanded the flexibility of 529 savings plans by allowing investors to withdraw up to $10,000 per year, per child tax-free and penalty-free for tuition for elementary or secondary school. This opens up more opportunities for parents to use 529 funds for their child’s education. But given how new the law is, it’s a good idea to proceed carefully. According to Amrein, the tax implications of withdrawing 529 money for K-12 tuition are straightforward on the federal side but are yet to be determined on the state side. “What a lot of states are dealing with is a lot of them had incentive programs for college contributions,” said Amrein. “What I’m hearing is some of the states are either going to withdraw that incentive or, if you use it for K-12 expenses, there may be a clawback provision that they can rescind that tax break you received for previous contributions.” If you live in a state that offers tax breaks for 529 plan contributions, and if you’ve taken advantage of those tax breaks, you may want to speak to an accountant before using your 529 funds for K-12 tuition.

Alternatives to 529 savings plans While the tax breaks offered by a 529 savings plan are hard to beat if you’re saving money specifically for education, there are a number of other savings and investment accounts that can be more advantageous, depending on the specifics of your situation. Here are some of the major alternatives to consider. Roth IRA While Roth IRAs are technically retirement accounts, they have a few characteristics that make them attractive college savings accounts: They offer tax-deferred growth while the money is inside the account.

You can withdraw up to the amount you’ve contributed at any time and for any reason without tax or penalty.

Early withdrawals of Roth IRA earnings used for higher education are taxed but are not subject to the typical 10% penalty.

If you don’t need the money for college, you can keep it in the Roth IRA and use it tax-free for retirement. “I’m a big proponent of incorporating a Roth into college planning, especially when you have a teenager who is hopefully earning money,” said Furubotten-LaRosee. “Starting the savings habit is a biggie, and if you don’t use it for college it’s available for retirement or any other goal.” The big downsides are that Roth IRAs are not as tax-efficient as 529 savings plans when used for college and that by dedicating your Roth IRA for college savings, you’re using up valuable retirement space. Still, the flexibility is often worth it. Taxable investment account A regular, taxable investment account doesn’t offer any tax advantages, but it does provide maximum flexibility to invest in whatever you’d like and to use the money at any time and for any reason. “As a parent, sometimes you need flexibility with your money,” said Furubotten-LaRosee. “You need the ability to control things as life progresses, and not having it tied into a 529 plan means you can access it when you need to.” Coverdell ESA The primary benefit of a Coverdell Education Savings Account (ESA) used to be the ability to allocate the money for K-12 expenses, but that benefit is much less relevant now that 529 savings plans can also be used for the same purpose. Coverdell ESAs also come with stricter contribution limits than 529 savings plans. Contributions are limited to $2,000 per year, per child across all contributors. Once your Modified AGI (adjusted gross income with certain deductions like student loan interest added back) exceeds $110,000 for individuals or $220,000 for married couples filing jointly, you can no longer contribute. According to Amrein, the main benefit of a Coverdell ESA at this point is the ability to choose from a much wider range of investment options than you can get from a 529 plan. “It’s kind of like comparing a 401(k) to an IRA,” said Amrein. “Most 529 plans are very restrictive, with maybe five to 10 investment options to choose from. On the Coverdell side, you can invest in anything you want, but you’re limited to $2,000 per year.” Savings account While a savings account can’t offer the long-term returns that you might get from a 529 savings plan, Roth IRA or Coverdell ESA, it is a simple and safe choice that can make sense either as a starting point or if your child will be starting college soon. And Furubotten-LaRosee argues that no matter which account you choose, the main priority should simply be to separate your college savings from your regular checking and savings accounts. “Even if it’s just in a separate savings account, the main thing is having it really separate and earmarked for college,” said Furubotten-LaRosee. “That gives it a little protection from your day-to-day spending.”