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Common 529 plan fees to watch out for

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A 529 plan is a tax-advantaged savings plan designed to help families save for future education costs. But while a 529 plan can be a lucrative investment vehicle, it can come with some fees.

As you explore 529 plans, keep an eye out for which charge the highest or the most fees. While they’re not the only factor you should consider, fees can help you determine which 529 plan is the best for your children.

Do 529 plans charge fees?

All 529 plans charge fees, but those fees can vary by which state offers the plan, whether the plan is advisor-sold or direct-sold, whether the state offers a tax deduction, what the plan offers and more. A few of the most common fees are:

  • Account maintenance fee: An account maintenance fee is rare — and many plans will waive it if you meet certain criteria. If you are charged an account maintenance fee, it will be either a monthly or quarterly fee represented as either a fixed dollar amount or a small percentage of the assets in your plan. This fee usually totals less than $50.
  • Annual maintenance fee: An annual maintenance fee is a yearly charge for having an account open. Many plans don’t charge an annual maintenance fee, but those that do typically charge less than $50.
  • Enrollment fee: An enrollment or application fee is a charge for enrolling in the 529 plan you’ve chosen. Not all plans charge this; for those that do, expect to pay around $50.
  • Expense ratios: Almost all 529 plans charge annual fees based on a small percentage of your assets under management. For instance, $100,000 invested in a 529 plan with a 0.2 percent expense ratio will be charged $200 in fees each year. Plans opened through a brokerage or a licensed financial advisor (advisor-sold plans) tend to have higher expense ratios than plans opened directly by the investor (direct-sold plans).
  • Sales charges: If you invest in a plan with a broker, your broker could take a commission totaling a percentage of your investment — sometimes around 5 percent.

Which 529 plan has the lowest fees?

Each 529 plan is constructed differently, and often it’s hard to tell how much you’ll pay in fees over time. To compare numbers, visit the websites of a few 529 plans you’re considering; these sites should give estimates of what you’ll pay in fees.

In general, direct-sold plans have lower fees than advisor-sold plans, since an advisor-sold plan offers more personal guidance for your specific needs. If you choose a direct-sold plan, your expense ratio could be a few percentage points lower than with an advisor-sold plan.

You may also be able to avoid fees if you choose a plan from your state. For instance, many plans waive account maintenance fees for residents of the state that sponsors the plan.

The bottom line

While picking a 529 plan can take time, it’s important to find the right one for your needs. Many plans don’t have residency restrictions, which means you can choose a state plan even if you don’t live in that state.

As you search for a plan, fees are an important consideration, but they’re not the only consideration. Also take a look at the plan’s track record of investment performance, what unique benefits it has and what additional tax deductions are available to you.

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
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