State-Run 529 College-Savings Plans Continue to Drive Down Costs

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In its recently-updated study of 529 college-savings plans, Savingforcollege.com found that fees and expenses continue to fall, making these tax-advantaged investment programs even more attractive to parents and grandparents.

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Many states have pushed for and achieved manager fee reductions through competitive bidding practices, and by switching to index funds in plan investment portfolios.

Savingforcollege.com, an independent source of information, data, and rankings of 529 college-savings plans, has found continuing decreases in fees and expenses among the increasingly-popular investment programs. The website’s 529 Fee Study, updated as of January 1, 2012, shows that fully half (24) of the 48 direct-sold 529 plans that are open to residents of any state have at least one investment option with total 10-year costs below $500 on a $10,000 initial investment that achieves 5 percent annual growth.

The 529 plans in Virginia (VEST), California (ScholarShare), Ohio (CollegeAdvantage), and Utah (UESP) currently offer the lowest-cost 529 investment options among nationally-available plans, with each having at least one stock- or bond-based option with 10-year costs totaling less than $300 on a $10,000 initial investment.

“The race toward lower fees began in 2003 and has accelerated in recent years,” according to Joseph Hurley, founder of Savingforcollege.com and CEO of parent company JFH Innovative LLC. “Many states have pushed for and achieved manager fee reductions through competitive bidding practices, and by switching to index funds in plan investment portfolios.”

Savingforcollege.com’s 529 Fee Study examines all direct-sold 529 savings plans, with data compiled from the fee tables that are part of the official program disclosures. (Broker-sold 529 plans generally have much more complex fee structures and are not part of the study.) Costs include all account maintenance fees and underlying fund expense ratios. The "no-fee" bank CD options and insurance-backed guaranteed options found in several of the 529 plans are excluded from the study.

A small number of states restrict enrollment in their 529 plans to state residents. For example, Louisiana maintains the lowest-cost option of any 529 savings plan, but the plan is available only to Louisiana residents.

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.

529 Fee Study (54 Plans)

10-year costs on $10,000 investment
Lowest cost option - Highest cost option

Louisiana: START Saving Program $0 - $567
Rhode Island: CollegeBoundfund (Direct-sold, Alternative RI) $77 - $1,556
Virginia: Virginia Education Savings Trust (VEST) $117 - $1,172
California: The ScholarShare College Savings Plan $230 - $776
Ohio: Ohio CollegeAdvantage 529 Savings Plan $243 - $1271
Utah: Utah Educational Savings Plan (UESP) $262 - $757
South Carolina: Future Scholar 529 College Savings Plan (Direct-sold) $293 - $726    
Arizona: Fidelity Arizona College Savings Plan $318 - $1,707
Delaware: Delaware College Investment Plan $318 - $1,707    
Massachusetts: U.Fund College Investing Plan $318 - $1,707

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Marie Osypian
JFH Innovative LLC
(585) 286 - 5426
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