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COLLEGE SAVINGS 101

Finding the lowest-cost 529 savings plans
http://www.savingforcollege.com/articles/finding-the-lowest-cost-529-savings-plans

Updated: 2016-07-28

Go to Fee Study

Savingforcollege.com's 529 Fee Study, updated as of July 16, 2016, shows that among 529 plans available nationally, Florida's Money Market Fund investment option has the lowest fee at $0, tied with Louisiana’s START Saving Program, whose Principal Protection Fund also has a $0 fee. When taking mean cost across the highest and lowest options, however, Louisiana and South Carolina’s Future Scholar 529 College Savings Plan - both plans available to in-state residents only - were significantly less expensive than their peers.

Costs include all account maintenance and investment management fees, including the expense ratios of the underlying investments in the plans' investment portfolios.

It is important to look not just at the highest- and lowest-cost options, however, but their spread and their average. Just because a plan has one or two cheap options does not mean that all of the options are the same cost nor does it mean that the right investment for you would be the cheapest in cost. This is why looking at these cost outliers and their means in combination gives us a better picture of which plans are providing the greatest value to their participants.

Looking at plans open to out-of-state residents, New York (New York's 529 College Savings Program) offers the lowest-cost 529 plan among plans that charge the same fee across the entire menu of investment options, and the lowest fees overall on average among nationally-sold 529 plans (using the arithmetic mean of these costs). The plan’s total 10-year costs are $205, representing an annual fee of only 0.16 percent.

The study examines all direct-sold 529 plans, with data compiled from the fee tables that are part of the official program disclosures. (Advisor-sold plans generally have much more complex fee structures and are not included.) The study also excludes the "no-fee" bank CD options and insurance-backed guaranteed options found in several of the plans.

As with all previous Fee Study updates, the current findings show a significant decrease in fees among many 529 savings plans. In the past six months, nearly 25 percent of the included plans implemented fee reductions.

Fees and expenses can have a significant impact on a college-savings fund. If the annual return of the underlying investments in Plan A is 7 percent, and the plan manager charges a fee of 20 basis points, or 0.2 percent, an investment of $5,000 today will grow to be worth $16,340 in 18 years. If Plan B uses the same underlying investments, but charges a management fee of 40 basis points or 0.4 percent, that same $5,000 investment will grow to $15,798, or $542 (3.4 percent) less than Plan A. The difference can be even larger if Plan A uses less-expensive underlying investments (e.g., index funds) than Plan B.

However, fees should not be the only factor in selecting a 529 plan. The more important figure is the NET performance of your 529 account after all costs. State tax and other benefits are also important factors.

Go to Fee Study
Go to Fee Study

Savingforcollege.com's 529 Fee Study, updated as of July 16, 2016, shows that among 529 plans available nationally, Florida's Money Market Fund investment option has the lowest fee at $0, tied with Louisiana’s START Saving Program, whose Principal Protection Fund also has a $0 fee. When taking mean cost across the highest and lowest options, however, Louisiana and South Carolina’s Future Scholar 529 College Savings Plan - both plans available to in-state residents only - were significantly less expensive than their peers.

Costs include all account maintenance and investment management fees, including the expense ratios of the underlying investments in the plans' investment portfolios.

It is important to look not just at the highest- and lowest-cost options, however, but their spread and their average. Just because a plan has one or two cheap options does not mean that all of the options are the same cost nor does it mean that the right investment for you would be the cheapest in cost. This is why looking at these cost outliers and their means in combination gives us a better picture of which plans are providing the greatest value to their participants.

Looking at plans open to out-of-state residents, New York (New York's 529 College Savings Program) offers the lowest-cost 529 plan among plans that charge the same fee across the entire menu of investment options, and the lowest fees overall on average among nationally-sold 529 plans (using the arithmetic mean of these costs). The plan’s total 10-year costs are $205, representing an annual fee of only 0.16 percent.

The study examines all direct-sold 529 plans, with data compiled from the fee tables that are part of the official program disclosures. (Advisor-sold plans generally have much more complex fee structures and are not included.) The study also excludes the "no-fee" bank CD options and insurance-backed guaranteed options found in several of the plans.

As with all previous Fee Study updates, the current findings show a significant decrease in fees among many 529 savings plans. In the past six months, nearly 25 percent of the included plans implemented fee reductions.

Fees and expenses can have a significant impact on a college-savings fund. If the annual return of the underlying investments in Plan A is 7 percent, and the plan manager charges a fee of 20 basis points, or 0.2 percent, an investment of $5,000 today will grow to be worth $16,340 in 18 years. If Plan B uses the same underlying investments, but charges a management fee of 40 basis points or 0.4 percent, that same $5,000 investment will grow to $15,798, or $542 (3.4 percent) less than Plan A. The difference can be even larger if Plan A uses less-expensive underlying investments (e.g., index funds) than Plan B.

However, fees should not be the only factor in selecting a 529 plan. The more important figure is the NET performance of your 529 account after all costs. State tax and other benefits are also important factors.

Go to Fee Study

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