| The downside of 529 plans |
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Families looking to steer clear of high fees will
want to pass on broker-sold 529 plans. A broker-sold 529 plan could
be two or three times more expensive than a 529 plan offered directly
from a state.
"Focus on plans with lower costs,"
Hearn says. "Those are typically direct-sold plans."
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529 bargains |
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Looking for a low-cost 529 plan?
A state-sponsored 529 plan managed by TIAA-CREF
or Vanguard is a good place to start.
These plans offer a diverse set of investment
options at a low price.
TIAA-CREF provides management
and mutual funds for plans in 13 states: California,
Connecticut, Georgia, Idaho, Kentucky, Michigan,
Minnesota, Mississippi, Missouri, New York, Oklahoma,
Tennessee and Vermont.
Vanguard provides management
and mutual funds for state plans in Iowa and Utah.
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If you're set on a broker-sold plan, don't be
afraid to ask your broker about commissions.
"What do you gain today for selling me
this? What is your commission?" Gannon says. "The investor
should always ask what the broker is getting paid in commission
or fees for selling the plan."
When it comes to studying the costs of a 529
plan, take your time and make sure you understand all the details.
"Make sure you look at the fine print
as far as fees are concerned," Pressley says. "They may
have different fees for residents and nonresidents."
One detail you'll want to check out is minimum-balance
requirements.
"If there's a minimum balance that's required
and your investments are not performing well and it dips below that
minimum you may be assessed a monthly maintenance fee," Pressley
says. "The people who get nicked for those are the ones who
can least afford it."
Remember when it comes to state-sponsored 529 plans
you've got a ton of options. Most state-sponsored college savings
plans are open to nonresidents as well.
"You can be a resident of New York or
Connecticut and invest in a Utah plan and you can decide to go to
school in North Carolina," Hearn says.
So feel free to shop around for the plan that best
meets your family's financial and educational needs. For more information
on selecting a college savings plan check out these consumer brochures
from NASD
and the College
Savings Plans Network.
The key thing you're looking for is a low-cost 529
plan with a diverse set of investment options. One-percent annual
expenses and under is a good guideline.
Financial advisers point to college savings plans
managed by TIAA-CREF and Vanguard Group as examples of 529 plans
that offer good investment options at low prices.
What constitutes an expensive 529 plan? Any plan
with annual expenses that exceed 1.3 percent should be considered
on the pricey side, according to Joe Hurley, author of The Best
Way to Save for College: A Complete Guide to 529 Plans.
Before studying 529 plans from across the country,
be sure to take a hard look at the college savings plans available
in your state. The reason? Your state may offer some pretty substantial
state tax incentives and other benefits for choosing one of its
529 plans.
Many states offer state tax deductions to residents
that contribute to 529 plans.
"If you're in a state that does offer
tax incentives for signing up for its plan you'll want to think
long and hard about using someone else's plan," Adam says.
In a few states, signing on for a 529 savings plan
in your home state means free money for college. In Minnesota, matching
contributions ranging from 5 percent to 15 percent are available
to families with incomes of $80,000 and lower.
Matching 529 contributions are also available in
Louisiana and Michigan.
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