Some states include underlying fund expenses in a plan's asset-based management fee. Other states charge underlying fund fees separately. Be sure to check.
Expenses vary widely between 529 plans. Some plans charge asset-based management fees below 1 percent. Other plans charge annual management fees exceeding 8 or 10 percent. Choosing a low-cost 529 plan could save you hundreds of dollars in fees every year.
Let's say you've got $10,000 invested in a college savings plan. Choose a 529 plan with an annual operating expense of 1 percent and you'd pay a fee of $100 after a year. Choose a plan with a 10 percent operating expense and you'd pay a $1,000 fee after just one year.
The Fee Effect
|Annual Rate of Return||10%||10%|
|Term of Investment||18 years||18 years|
Suppose you invest $10,000 in a college savings plan with an annual operating expense of 10.97 percent. Let's say you get a return of 10 percent before expenses. After 18 years, you'd have just $6,866 saved for college, more than $3,000 less than when you started.
Now let's say you invest $10,000 in a college savings plan with an annual operating expense of just 0.85 percent with that same 10 percent return. After 18 years, you'd have $47,680 to pay for college expenses, an increase of $37,680.