Fidelity Investments recently announced changes to their product lineup, including some that offer lower costs and greater flexibility for college savers.
Fidelity manages four direct-sold 529 plans: the Fidelity Arizona College Savings Plan, the Delaware College Investment Plan, Massachusetts’s U.Fund College Investing Plan and New Hampshire’s UNIQUE College Investing Plan, which are all available nationwide and use the same investment approach. Fidelity also manages New Hampshire’s advisor-sold 529 plan, which offers more investment options than the direct-sold plans.
The changes are part of an effort to compete with low-cost competitors such as Vanguard and Charles Schwab, and are expected to save shareholders approximately $47 million annually.
Here is a summary of Fidelity’s recent enhancements, which took effect on August 1, 2018:
No minimum contribution requirements for 529 plans
Investors can now open a retail brokerage account, including a 529 college savings plan, through Fidelity with no account fees and no minimum contribution requirement. This allows families with limited funds available to start taking advantage of 529 plan tax benefits sooner. Parents can open an account and make their first contribution at their convenience or solicit gifts from friends and relatives using Fidelity’s college gifting program.
Prior to the change, Fidelity’s 529 plans had a $50 minimum requirement for lump sum contributions with a $25 minimum for subsequent contributions, or $15 per month/$45 per quarter if using the automatic investment plan.
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Lower expenses on existing index funds
Fidelity has lowered total expenses on 21 index mutual funds, and plans to consolidate share classes so that individuals and financial advisors are offered the same low expense ratios previously available only to institutional investors.
The index funds available through Fidelity’s 529 plans, however, will not be affected by the changes since they already use the institutional share class. This includes the Fidelity 500 Index Fund, the Fidelity International Index Fund, the Fidelity Intermediate Treasury Bond Fund Index and the Fidelity Total Market Index Fund, which are all available as individual 529 plan portfolio options.
For the 3-year period ended June 30, 2018, the Fidelity Arizona College Savings Plan, the Delaware College Investment Plan, Massachusetts’s U.Fund College Investing Plan and New Hampshire’s UNIQUE College Investing Plan ranked 32nd, 31st, 33rd and 30th, respectively, based on Savingforcollege.com’s 529 plan rankings. The Fidelity Advisor-Sold 529 plan ranked 9th.
Two new zero expense index mutual funds
Fidelity also introduced two zero expense ratio index mutual funds, which have no account minimums, no account fees, and no domestic money movement fees. The new funds, the Fidelity Zero Total Market Index Fund and the Fidelity Zero International Index Fund, offer broad exposure to domestic and international stock markets and are the first free index funds available to individual investors, beating Schwab’s 0.03 percent and Vanguard’s 0.14 percent expenses for similar offerings. These funds are only available to individual investors who open a Fidelity account.