Best 529 Plans For 2026: State Tax Breaks Beat Low Fees In Our Net ROI Rankings

529 plan performance is tough to measure — it’s not just investment returns, but also tax benefits and fees. A low-cost plan sounds great on paper, but a generous state income tax break can more than make up for a plan with higher fees.

In fact, for most families, the best 529 plan is your own state’s plan because most states only give you the income tax deduction or credit if you use their plan, and that tax break is usually worth far more than any difference in fees. This isn’t a list to shop from the way you’d shop for a brokerage account.

Instead, we rank every state’s plan by net return on investment (net ROI): what a resident actually keeps after fees, with the value of the state income tax break reinvested in the plan. Think of it as a measure of “how good a deal your state gives you”.

For 2026, Indiana residents get the best deal in the country: an 87.8% net ROI, powered by the state’s 20% tax credit on contributions. New Jersey (74.3%) and New York (74.2%) follow. At the bottom, Hawaii returns just 51.4%, a gap of more than 36% between the best and worst states.

There was more movement in the rankings this year than usual: 45 plans cut their fees in the last year and 21 states lowered their top income tax rates. But the core lesson hasn’t changed: net ROI correlates far more strongly with the size of your state’s income tax break than with low fees. And if you live in a state with no tax break (or a tax parity state that gives you the break anywhere), that’s when it makes sense to shop nationwide for the lowest fees.

Let’s break it down.

What’s New For 529 Plans In 2026

There have been several recent changes to 529 plans worth knowing before you pick one:

The annual limit on qualified 529 distributions for K-12 tuition and expenses doubled from $10,000 to $20,000. Congress also expanded the list of qualified expenses to cover more K-12 costs and postsecondary credentialing programs (think professional certifications and licenses).

Rollovers from 529 plans to ABLE accounts, previously set to expire, are now permanent. And 529-to-Roth IRA rollovers (available since 2024) remain an option for leftover funds, though the IRS still hasn’t issued guidance on how a beneficiary change or a rollover to another state’s 529 plan affects the 15-year clock.

As remember to check your state’s rules! Just because federal law allows something doesn’t mean your state’s rules conform. You can select your state in The College Investor’s 529 Plan Guide and see what rules your state has.

Popular Ratings Of 529 Plans

There are several well-known ratings of 529 plans, such as: 

• Savingforcollege.com: 5-Cap Ratings and Performance Rankings
• Morningstar: Gold, Silver, and Bronze Ratings

These ratings are based on a holistic evaluation of 529 plan performance, considering the full mix of investment options.

More recently, Penn-Wharton published a study that compares the performance of each state’s 529 plan with a lower-cost, out-of-state plan. 

This study confirms two things:

• Direct-sold 529 plans have lower fees than advisor-sold 529 plans, lower than 1%. 
• Investors in 28 states would be better off going out of state for lower fees. 

This is similar to previous research, such as Savingforcollege.com’s Fee Study. The Penn-Wharton study identified California as the lowest-cost state since it has lower average fees on its set of investment options.

Two Investment Options Are Enough

A key flaw of all these studies is they use a holistic analysis to identify the best collection of investment options. Most 529 plans offer a dozen or more investment options.

But, all most families need are just two investment options:

1. High-risk/high-return investment option
2. Low-risk investment option

They can then mix these investment options to achieve an asset allocation that yields their desired combination of risk and return. Most of the performance of an investment portfolio is due to the asset allocation (e.g., percentage equities), not the specific investments included in the portfolio.

The high-risk investment option can be an S&P 500 index fund. Other stock funds, such as the Russell 2000 and a total stock market index fund, behave similarly to the S&P 500. 

Only about 75 stocks in these index funds dictate the performance of the funds because the funds are weighted by market capitalization. Everything else is just a matter of taste. Chasing after the latest fad, such as a REIT, foreign stock fund, or ESG fund, usually results in lower long-term performance.

Although the expenses vary by portfolio, the index funds usually have the lowest fees.

But the fees for the same index funds do vary by 529 plan, from 2 bp to 65 bp. (A “bp” is 1/100th of a percent.)

Combined Impact Of Fees And State Income Tax Breaks

The total annual asset-based fee was identified for the S&P 500 index fund for each direct-sold 529 plan. The fee information was extracted from the latest version of each 529 plan’s disclosure brochure or program description.

If the 529 plan does not offer an S&P 500 portfolio, a large cap or total stock market index fund was substituted, whichever had the lowest fees. Examples include the Vanguard Total Stock Market Index Fund and the U.S. Broad Large Cap Index Fund.

The highest state income tax break was also identified for each 529 plan. Two-thirds of the states offer a state income tax deduction or tax credit based on contributions to the state’s 529 plan. 

The fees and state income tax breaks were combined to calculate the net return on investment after investing $100 per month at a 5% annual rate of return for 10 years. This more naturally mimics the typical performance experienced by investors in 529 plans, in contrast with analysis that assumes a $10,000 lump-sum contribution.

A 5% annual rate of return, about half of the long-term return on an S&P 500 index fund, is what one could expect by using an age-based asset allocation on average. The monthly contribution amount does not hold much significance as the return on investment is proportional. 

However, $100 per month is low enough to ensure eligibility for the maximum state income tax break. The analysis assumes that the value of the state income tax break is contributed to the 529 plan as an extra contribution once a year. Fees are also subtracted once a year.

The result is shown in the following table, with Wyoming omitted since it does not have its own 529 plan or offer a state income tax break. The table is sorted according to Net ROI, from highest to lowest. 

The dozen lowest performing states either do not offer a state income tax break or do not have a state income tax. This includes three states with very low fees: 

• Florida
• South Dakota
• California

However, offering a state income tax break does not guarantee good performance. Mississippi offers a state income tax deduction but also charges the highest fees at 60 bp, resulting in among the worst performance. 

Generally, there is a stronger correlation between the net return on investment and the value of the state income tax break than with having lower fees. There is no correlation between fees and the state income tax break, so higher fees are not necessary to provide better benefits to families.

Best 529 Plan Performance (ROI)

Here’s a breakdown of states, their fees, tax breaks, and net return on investment (ROI) in ROI order:

An Important Note About State Tax Breaks

Before you make a choice, it’s important to understand one thing about how these tax breaks work: in most states, you only get the state income tax deduction or credit if you contribute to your own state’s plan. Contribute to another state’s plan, and the tax break disappears. This is why your home state’s plan is usually the right default, even if its fees are higher than the top plans on this list. (Each state sets its own rules… here’s why 529 plans differ so much by state.)

But that’s not universal. A handful of “tax parity” states give you the tax break no matter which state’s plan you use. If you live in one of them, you get the best of both worlds: pick the plan with the lowest fees (or the investment options you like best) and still collect your state’s tax break.

And if you live in a state with no income tax break at all, the tax break is off the table entirely. In that case, fees become the biggest driver of your net return, and you’re free to shop nationwide for the best plan.

Look for the lowest-cost plans that offer low fees to out-of-state residents: California or Virginia for example. While some states charge zero fees, many times that’s only open to state residents, so check eligibility before you enroll.