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Understanding your state's slice of 529 fees
by Joe Hurley, founder,
Thursday, December 13th 2007

[Updated March 12, 2008]

The cost of 529 plans is dropping—fast. Last year, a story in the Wall Street Journal, using data from Financial Research Corporation, reported that the underlying annual expenses of the funds used in 529 plans had dropped 31% between 2004 and 2007. Not only are 529 plans using less expensive funds, but outside program manager fees have decreased as well, the result of aggressive bidding for management contracts in states having significant assets in their plans.

This trend will continue, at least for a while. According to the Wall Street Journal article mentioned above, 70% of plan manager contracts are up for re-bid by the end of 2010. Several states and their program managers have preemptively cut fees even without going through a re-bidding process. As I was quoted: "The lowest-cost plan today won't be the lowest-cost plan tomorrow."

How low can fees go? Well, one place where there may still be some room for cutting is in the fee "slice" taken by the state agencies responsible for administering the programs. While some states take nothing from the 529 investment pools, others may layer a fee of one to twenty basis points on top of the plan's underlying fund expenses and outside program manager fees. For a 529 plan with $1 billion in assets, 15 basis points equates to $1.5 million in annual revenues to the state. With many 529 plans now holding well over $1 billion in assets, it's reasonable to surmise that some states are taking in substantial dollars.

It is not always clear what the state does with this revenue. Typically, advertising and marketing expenses are among the states' biggest expenses, along with program administration and oversight. Some states will use extra revenues to fund scholarship programs or other higher education initiatives.

Listed below are the direct-sold 529 plans from which the sponsoring state takes an asset-based fee. The data comes from the programs' official offering documents. Although we don't include adviser-sold 529 plans on the list below, it is worth noting that a few states take a 0.05% or 0.10% fee from the adviser-sold plan even when nothing is charged to the state's direct-sold 529 plan.

If your state is not on the list below, it probably still receives 529 revenues. But instead of getting a percentage of the asset pie, it may be receiving a flat dollar amount from the outside program manager to cover state administrative and marketing costs. Of course, the dollar commitment required of the program manager is a significant factor in determining how low the firms will go in their bids for the contract.

Arkansas GIFT - 0.15%
California Scholarshare - 0.10%
Colorado Direct - 0.10%
Connecticut CHET- 0.01%
Delaware CIP - 0.10%
District of Columbia DC 529- 0.15%
Florida CIP- 0.75% (includes investment management fees)
Illinois - 0% or 0.03% depending on investment option
Maine NextGen - 0%, 0.125%, or 0.15% depending on investment option and residency status
Massachusetts U.Fund- 0.15%
New Hampshire UNIQUE - 0.15%
New Mexico The Education Plan- 0.10%
North Dakota CollegeSAVE - 0.10%
Ohio CollegeAdvantage- 0%, 0.05%, 0.10%, or 0.20% depending on investment option
Oregon CSP - 0.10%
Pennsylvania Direct - 0.075%
Texas - 0% or 0.10% depending on investment option
Utah UESP - 0% to 0.25% depending on investment option (no outside program manager)
Virginia VEST - 0.25% (no outside program manager)
West Virginia - 0.05% or 0.07% depending on investment option
Wisconsin EdVest - 0.10% (currently being waived by the state)

» Claiming a state income tax deduction - 12/20/16
» Understanding 529 Investment Options - 12/13/16
» Should you open an UGMA/UTMA 529? - 02/06/08
» Understanding your state's slice of 529 fees - 12/13/07
» Planning for the new "kiddie tax" - 10/30/07
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