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The Very Best 529 Plans?

Written by Nickel - 22 Comments

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We’re in the market for the “best” 529 plan available. I’ll preface this by saying that I’m partial to Vanguard, and primarily looking at fees and investment options — I prefer making my own investment decisions on something like this as opposed to going with an age-based option. I’m also interested in identifying plans with high maximum contribution limits. I should also note that our state does have a plan with state tax benefits, but we exceed the income limits for deducting even a small portion of our contributions. Beyond that, the plan isn’t all that good, so I’m looking elsewhere.

I’ve heard especially good things about the Utah plan, which has five age-based options as well as four static options – not complete flexibility, but I can probably make do with the static options. They assess an administrative fee of 0.25% of invested assets plus $25 $20 per year (this latter fee is actually $5 $4 per $1000 invested, up to a maximum of $25 $20). In addition to this, investments are subject to Vanguard’s fees, which range form 0.025% to 0.13% for the fund combinations available. This means that the management fees will be less than 0.40% of invested assets per year, not including the $25 flat fee. Oh, and they currently have a maximum contribution limit of $319,000.

From what I’ve seen, this makes Utah look like one of the cheapest and most attractive plans, but I was wondering if anyone out there has specific recommendations as to other programs that we should be looking at…

Update: Illinois has just re-worked their 529 plan, known as BrightStart, to include Vanguard Index Funds as an option (they also have actively-managed Oppenheimer funds). Their expenses are low (a total of 0.20-0.23% for the Vanguard funds plus a $10 annual account maintenance fee) and their investment options look similar to Utah. If you’re concerned about maximum contributions, however, they’re capped at $235,000 in Illinois, considerably lower than what is available in Utah). The new plan was made available yesterday.

Published on July 24th, 2007 - 22 Comments
Filed under: Education,Saving & Investing

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Comments (scroll down to add your own):

  1. I’ll be opening a 529 soon, and I’ve been tempted to go with USAA. Mainly because my Roth IRA, auto insurance, and renter’s insurance are already through them. Any thoughts on if USAA offers a good 529 plan?

    Comment by Anonymous — Jul 24th 2007 @ 2:05 pm
  2. Well, if a private university is a possibility, look into the TIAA-CREF Independent 529 Plan. There are 250 member universities, and they cover the administrative fees. It is a pre-paid tuition plan that offers a 1% discount off of prices based on current tuition rates.

    Comment by Anonymous — Jul 24th 2007 @ 2:16 pm
  3. It looks like they have (or at least had) one through Nevada (though I know Nevada also offer a Vanguard 529). Looks a little pricey with portfolio expense ratios in the 0.65-0.94% range.

    Click here for details.

    Here’s their assessment of the funds:

    “The underlying funds themselves, which in the case of the equity options USAA subadvises out to other managers, are decent though not great.”

    Comment by Nickel — Jul 24th 2007 @ 2:21 pm
  4. Nickel,

    This month’s issue of Money Magazine has a list of 70 of the 85 529 plans, as well as which ones are better on a state level or a national level.

    George was awarded with a state level star, while California, Iowa, Michigan, Nevada and Utah all got the national nod. If you get a copy or are browsing your local newstand, the charts are on pages 131-132.

    Comment by Anonymous — Jul 24th 2007 @ 2:23 pm
  5. Ohio has a low cost plan and is also Vanguard. I currently use NY’s Vanguard/Upromise (55 bps) plan with a 50% allocation to age-based and 50% in a static portfolio to keep the overall allocation a little more consistent over the years than using age based alone.

    Comment by Anonymous — Jul 24th 2007 @ 2:27 pm
  6. I was going to mention the changes to the Illinois plan as I had just posted about the new plan on Saturday.

    Being previously invested in the Illinois Bright Start program, I’m really looking forward to these changes as I am a big fan of Vanguard and like the new investment options and the lower expenses.

    Comment by Anonymous — Jul 24th 2007 @ 2:36 pm
  7. Just as a note, effective July 1st, 2007 the fees lowered on the Utah Educational Savings Plan. The maintenance fee has been reduced from a maximum of $25 to a maximum of $20, charged at a rate for $4 per $1,000.

    Comment by Anonymous — Jul 24th 2007 @ 4:07 pm
  8. We use the UPromise 529 plan, which I believe is through Nevada and utilizes Vanguard funds. A nice benefit is that you can automatically transfer any UPromise earnings directly into the plan.

    Comment by Anonymous — Jul 24th 2007 @ 4:15 pm
  9. John: My main problem with the Nevada Upromise plan is that the expenses are roughly double those of Utah (and even more relative to the new Illinois plan). Also note that you can connect Upromise to other 529 plans, as well (not all of them, but quite a few). Moreover, you can get your funds out of Upromise by requesting a check. You can then deposit it in whatever 529 you want (or spend it, or whatever).

    Comment by Nickel — Jul 24th 2007 @ 4:26 pm
  10. Try Ohio’s 529 plan
    S&P Index – 0.23
    Total Bond Market Index – 0.33
    Developed Mkts Index – .41

    No other fees. They also have low minimum ($15)
    This plan is cheaper than Utah especially for smaller balances. The fees have been going down the last couple of years For Eg. S&P Index was .35 two years ago

    Comment by Anonymous — Jul 24th 2007 @ 5:21 pm
  11. If I can provide any additional information on the Illinois plan, please let me know. Oppenheimer sent out the details of the plan changes a week or two ago.

    Comment by Anonymous — Jul 24th 2007 @ 5:37 pm
  12. I’ll pile on with those who suggested Ohio’s plan. I just happened to check it out today because I’m contemplating a move to Ohio to take advantage of lower cost of living there generally (I live near DC now).

    This page explains their fees.
    If I understand this correctly, it actually looks much better than Utah’s plan.

    I like that the Age-based Vanguard plans have 3 different levels of aggressiveness to cater to differing appetites for risk. I wish my 401(k) offered something like that for retirement. They also have static plans from Vanguard.

    Comment by Anonymous — Jul 24th 2007 @ 9:38 pm
  13. I think its more important to find the right 529 based on the Tax code of your state rather than seeking only performance ranking or fee schedules.. For example, Oklahoma offers a tax deduction on contributions made into their plan up to a limit. Thus, a normal earner can save 7% as a tax deduction on State taxes for contributions made. And, if you don’t use the plan sponsored by your state in an income tax state, you’ve got to pay state income tax on distributions. If you are like me, you don’t have state income tax and you want features and benefits that work well for you. I use a plan offered by the largest mutual fund family.. and, while performance has been average, there is a credit card which credits 2% of purchases to the 529 account. I have 2 cards and am able to get $3,000 into my plans each year… just by using the cards to pay everything I can… What a deal… Merchants paying for my kid’s school. So don’t believe all the studys you read. Statistics can be twisted to prove any case you want to make.

    Comment by Anonymous — Jul 24th 2007 @ 10:47 pm
  14. The Only Investment Guide You’ll Ever Need by Tobias recommends the Nevada plan but suggests that once per year you should look around and see if there is a better plan and then move your money if necessary. He recommends this website for evaluating the differences between the plans.

    I would love to open a 529 plan for my new daughter, but don’t feel that I will be able to contribute much to it at this point since my priority is retirement. I like the idea of getting a credit card and connecting the cash back to the 529. I’ve heard of Upromise and I know Fidelity has one also. I want to pay EVERYTHING every month (incl. mortgage, etc.) so that I get the most points. Any thoughts on this portion of the equation?

    Comment by Anonymous — Jul 25th 2007 @ 8:53 am
  15. Nickel:

    Definite food for thought on the Nevada plan. That’ll learn me to blindly go with a “brand”! 🙂


    Comment by Anonymous — Jul 25th 2007 @ 9:11 am
  16. MITBeta:

    I would look at UPromise first, since in addition to being able to get a credit card for “points” (actually real money), you can maximize by shopping online or even locally with UPromise merchants and products. Sign up your shopper cards at the grocery, too, and you may even be able to “triple” dip!

    I personally don’t use the credit card, as I use another for points for vacations and such, but you can register existing credit cards and earn cash by shopping at particular merchants online (almost everyone except Amazon).

    We have been averaging about 200-300 dollars per year in “free” money for our kids 529 plans. You can have your friends and family sign up as well and contribute to your kids funds.

    Comment by Anonymous — Jul 25th 2007 @ 9:17 am
  17. NOW I can put a full vote in for Dimensional! You can access Dimensional Funds w/o the usual up-front fees via WV’s 529.

    Better diversification than possible via Vanguard:

    My good bud Joe Hurley rates ’em a 4-cap, a rare rating (the highest non-resident rating is 4.5 caps, which, if I am not mistaken, only three plans achieve: MD, SC, and MN.

    If you want to out-Bogle Vanguard and join the DFA cult, this is one of the best opportunities.

    Comment by Anonymous — Jul 25th 2007 @ 2:57 pm
  18. You might check out the Iowa plan, which is another Vanguard/Upromise offering. Total feel are .62% with no additional flat amount, and good selection of funds. I figure the cross-over point on fees as compared to Nevada is between $4000-$8300, depending on which funds you are invested it. Obviously, if you intend to reach higher amounts in the fund, then Nevada is a better option.

    Comment by Anonymous — Jul 26th 2007 @ 2:29 pm
  19. We have a lot of money with USAA and we aren’t going with it. Ohio has all the things we are looking for.

    Comment by Anonymous — Jul 28th 2007 @ 1:49 pm
  20. I’m Ohio’s. I looked at almost all the plans this spring and Ohio’s had the lowest fees for investing in Vanguard Index funds.

    Comment by Anonymous — Jul 30th 2007 @ 9:39 am
  21. I love the Iowa plan … the Vanguard fund choices are great and the options for investing are pretty good. The plan is inexpensive compared to others. I live in a state without a state income tax so that wasn’t an issue for me.

    Don’t forget to sign up for Upromise and link it to your 529. It is painless. I have linked my gas card, my grocery card and my credit cards to it. I don’t try very hard and even without remembering to shop through them when I shop online, I have managed to get over $100 in free money for my son’s 529 … no brainer.

    Comment by Anonymous — Jul 30th 2007 @ 1:45 pm
  22. I presently have a John Hancock 529 plan through Alaska. Everytime I invest it costs me 5%. I asked my financial advisor about this and she said we are paying all of the fees associated with removing the money upfront? Is this true? All the information I have read indicates a managed plan under 1% in fees. Am I getting ripped off?

    Comment by Anonymous — Apr 3rd 2009 @ 12:40 pm

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