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When should you switch 529 plans?
Your 529 plan undergoes a manager change
States generally bid out the contracts for the management of their 529 savings programs, and every so often a state will rebid the contract and end up switching managers to a new investment firm Although there is usually every reason to believe the change to be beneficial for plan participants, you don't necessarily have to agree with it and you may decide to look elsewhere once the change in managers is announced. Even with no change in manager, a change in the menu of investment options, or in the underlying funds used, can be implemented at any time without your agreement. And if your state ever decides to terminate its 529 plan-Wyoming and Tennessee being prime examples--you'll be forced to roll over to another state's 529 plans if you want to avoid tax and penalty.
You expect poor performance to continue
As every investor should know, past performance is not a guarantee of future returns. But if your 529 plan has not been demonstrating good performance, as measured against its performance benchmarks or against competing 529 plans, you may feel it is in your best interest to switch to a different 529 plan with better-quality investments. Most 529 savings plans make their performance figures available on their web sites on a quarterly, monthly, or even daily basis. Because of the variety of options among 529 plans, and their relatively brief performance histories, comparisons are not easy to come by. That's why Savingforcollege.com offers a subscription service for investment professionals providing easy look-up of quarterly performance for thousands of 529 portfolios, along with our own performance comparisons and rankings.
Customer service
You may have questions about setting up your 529 account, making changes to it, taking withdrawals, or even just understanding the quarterly statements and other information you receive online or through the mail. You can usually obtain help through the plan's toll-free telephone number. Many plans allow you to handle your needs online with no delay. If you experience difficulties or frustration with your 529 plan, you will be tempted to move your account somewhere else in the hope of receiving better services.
Your current plan is too restrictive
When you signed up with your 529 plan, there may have been one or more restrictions in the plan not required under federal tax law. And although the restriction did not appear particularly troublesome at the time, you may now find yourself bumping up against it. One example is a grandparent who sets up the 529 account and later on decides the account is better managed by the parent of the grandchild. If the 529 plan is one of the handful of plans that does not allow an owner change prior to the original owner's death or legal incapacity, the only way to get around this restriction is to roll over the account to a new 529 plan that accepts requests for owner changes.
Posted June 27, 2008
Joe Hurley is the founder of SavingforCollege.com, and a certified public accountant.
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