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Finding the lowest-cost 529 savings plans
Savingforcollege.com's 529 Fee Study, updated as of January 31, 2015, shows that among 529 plans available nationally, Florida’s Money Market Fund investment option has the lowest fee at $0, but Texas College Savings Plan is also a contender. Its two lowest-cost stock- or bond-based investment options have 10-year costs on a $10,000 investment totaling $77 and $179, respectively.
Costs include all account maintenance and investment management fees, including the expense ratios of the underlying investments in the plans' investment portfolios.
Direct-sold 529 plans in Louisiana START Saving Program and Rhode Island CollegeBoundfund (Direct-sold, Alternative RI) offer investment options with fees even lower than Texas, but these 529 plans are open only to residents in those states.
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. Its total 10-year costs are $205, representing an annual fee of only 0.16%.
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, 67% (32) have at least one investment option available to nonresidents with 10-year costs below $500.
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 factors.