529 Plan Expenses Drop More than 6% in Past 12 Months

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529 college-savings plans continue to bring down their costs, according to a study by Savingforcollege.com, with several states cutting expenses in their lowest-cost investment options by more than 25% over the past year.

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Costs should no longer deter anyone from using a 529 plan.

Savingforcollege.com's semi-annual 529 Fee Study found that expenses in the lowest-cost investment options available in direct-sold 529 plans dropped by more than 6 percent, on average, between July 1, 2011 and June 30, 2012.

The study utilized data found in the fee tables published by 529 plans showing the cumulative 10-year cost of a $10,000 investment, which includes underlying fund expenses, asset-based program management and administrative charges, and fixed-dollar account fees, if any.

The average 10-year cost of the lowest-cost investment options in direct-sold 529 plans dropped 6.25%, from $575 as of June 30, 2011 to $539 one year later. Savingforcollege.com's 529 Fee Study also compares the second-lowest cost options in 529 plans as well as the highest-cost and second-highest cost options. The average 10-year costs were found to have decreased in all groupings.

"Our fee study suggests the fee war among 529 plans is ongoing," says Joe Hurley, founder of Savingforcollege.com. "Costs should no longer deter anyone from using a 529 plan."

Excluded from the study were advisor-sold 529 plans, which generally offer several classes of 529 units with each class priced differently. Also excluded were plan options that invest in FDIC-insured bank products, insurance-backed options, and stable-value products since the imbedded costs of those investments do not have a direct relationship to investment returns.

While most 529 plans saw no appreciable change in expenses over the last year, plans in Alaska, California, Maine, Maryland, Mississippi, Nevada (Upromise), New York, and Virginia saw decreases of 25 percent or more. Only three 529 plans experienced an increase in their lowest-cost options, due in each case to a slight jump in the expense ratios of underlying funds.

Among direct-sold 529 plans available to residents of any state, Virginia's VEST offered the lowest-cost option, a money-market option with a 10-year cost of only $117 on a $10,000 investment. Plans from California, New York, Ohio, and Utah each had at least one investment option with 10-year costs below $300.

Resident-only 529 plans in Louisiana, Rhode Island, and South Carolina were also noted for offering very low-cost options.

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Marie Osypian
JFH Innovative LLC
(585) 286 - 5426
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