Opening 529 plan in a state I might move to

[NorCal]

I'm getting ready to set up a 529 plan for my second daughter.  I've done enough research that I think I know what I want to do.  I've already maxed out all other tax-deferred savings options.  I'm curious if anyone has any reasons to NOT take this approach.

I currently live in California.  CA offers zero state benefits for investing in 529 plans, so I can really invest in any state I want.  We do plan to relocate out of CA over the next few years, with Colorado being the most likely option.  I give us a 60% chance of relocating to CO in the next two years.

The state tax benefits for CO residents seem pretty good, with the ability to both deduct contributions from current year income, and avoid taxes on investment gains.  Fund fees are 0.36%, although I don't have much basis to know if that is high or low for a 529 plan.

[seattlecyclone]

0.36% is a bit higher than some. The Vanguard/Nevada plan has a lot of great index options at 0.17%, and I think California's plan was just a touch lower the last time I looked. As I see it, there can be a benefit for investing in your state's plan if there's a tax break, otherwise you should just pick a cheap plan. Since you don't live in Colorado yet, perhaps you might choose a cheap plan for now to minimize your expenses. If and when you move to Colorado you might choose to open an account there to get the state tax benefits. You could transfer the funds over to Colorado at that time or just keep two separate accounts.

[Paul der Krake]

California has the lowest expenses in the country if you stick with one of their single fund portfolios. Just 8 basis points if you go with the total stock market option, which is why they've been able to attract a ton of out-of-state money recently.

I'd stick with them until you've established residency in Colorado. Plans change.