I'm Confused in Colorado?

The Kiplinger article states that if you live in one of the twenty states that allow you to deduct your 529 contributions, you should use that states' plan. If I put $5,000 in the Colorado Plan I get a one time $250 tax savings (5% state tax for CO). If the Colorado plan averages 10% for the next 17 years, I will have $25,272. On the other hand, If I find a state plan that averages 12% annually, my $5,000 becomes 34,330. For over $9,000 in earnings I am saving $250 in taxes once. Am I doing something wrong??

Unregistered

It is my opinion that you should always check your home state's plan to see if there are advantages, such as deductibility of contributions, exclusive exemption of earnings from state income tax, or other features (such as matching grants, scholarships, etc.). Any state advantages become criteria you use in evaluating/selecting 529 plans for your use.

Your logic falls apart, however, in trying to apply "a priori" assumptions about plan returns to your decision-making process. There is no way to know in advance whether your state plan will generate 10% (or 6-8%) annualized returns and another plan will generate 12% returns. The most you can do is evaluate historical performance of the underlying funds in the respective plans, recognizing that such performance is not predictive of future results.

But you can quantify the value of any state tax advantage, and weigh that advantage against other plan features for other plans you might be considering.

Again, state tax advantages may or may not be determining criteria in your planning process, but they should definitely be considered.

Hope this helps.