Savingforcollege.com's 529 Plan Fee Study

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With recent headlines exposing the hidden fees of various investment vehicles, you’re probably beginning to wonder how saving money has become so expensive. While fees associated with direct-sold 529 college savings plans have come down significantly in the last few years, they still need to be taken into consideration. To help you do this, this we have just updated our semi-annual fee study, which compares the costs of all direct-sold 529 college savings plans.

Eight Common 529 Plan Mistakes to Avoid

So why is it so important to look at fees and expenses of a 529 plan? Fees and expenses can have a direct impact on your account’s investment performance, which means they can eat up your returns and leave you with less money to pay for college. Common 529 plan fees include management and administration fees, expenses of the underlying investments and account maintenance fees. If you choose to purchase your plan through a financial advisor you will also incur sales charges.

Just how much of a difference can fees make? Here’s a good example from the Guru himself:

• 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.

Our most recent fee study, updated as of July 8, 2014, revealed that once again 529 plan fees are declining. California’s ScholarShare plan is the lowest cost option available nationally, with 10-year costs on an investment of $10,000 as low as $141. However, Louisiana, Rhode Island and South Carolina offer even lower fees, but these plans are only available to residents. Our fee study allows you to sort plans by highest or lowest cost so that you can easily see where your plan ranks.

When selecting a 529 plan, be sure to also take any state tax benefits into consideration. Many states offer a state tax credit or deduction, which may offset some of the higher plan costs. Our State Tax 529 Calculator, which was previously only available to those with a Premium Subscription, allows you to figure out just how much your state’s tax benefit is actually worth, and whether or not you should consider another state’s plan.

Find out more about your state's 529 plan.