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Finding the lowest-cost 529 savings plans
Savingforcollege.com’s 529 Fee Study, updated as of July 1, 2013, suggests that Ohio (Ohio CollegeAdvantage 529 Savings Plan), Wisconsin (EdVest), New York (New York’s 529 College Savings Program), California (ScholarShare), Utah (UESP), and Michigan (MESP) offer the lowest-cost 529 investment options among widely-available plans. Each of these plans has at least one stock- or bond-based option with 10-year costs totaling under $300 on a $10,000 initial investment. Costs include all account maintenance and investment management fees, including the expense ratios of the underlying investments in the plans’ investment portfolios.
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.
Of the 48 direct-sold 529 plans with no state residency requirements, 57% (27) have at least one investment option available to nonresidents with 10-year costs below $500.
A small number of states accept only residents into their direct-sold 529 plans. For example, Louisiana, Rhode Island, and South Carolina maintain the lowest costs of all 529 savings plans, but the plans are available only to state residents.
As with all previous Fee Study updates, the current findings show a significant decrease in fees among many 529 savings plans.
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, 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 factorsGo to 529 Fee Study.
Joe Hurley is the founder of Savingforcollege.com LLC, and a certified public accountant.