I am currently contributing to two 529 college saving plans. Even though for simplicity reasons, it is usually better to consolidate investments into one account, I find that having two accounts actually works better for me. Why did I end up with two plans? Read on…
The first step in selecting a college saving plan is to check if your home state provides any financial incentive (e.g. state income tax deduction) to invest in the state-sponsored college plan. For me, the state of California provides no such incentive. The California plan, managed by TIAA-CREF, is fairly respectable. It’s costs (ER 0.8%) is reasonable, but not the lowest; so I looked elsewhere.
My main criteria for selecting a college includes the following:
- Cost of the plan (expense ratios and account fees),
- Range of investment options, and
- Other special incentives.
The two accounts I ended up with are the following.
Account 1: Fidelity’s Unique College Investing Plan (sponsored by the state of New Hampshire).
I selected this plan based on the special incentives available with this plan. With this plan, I was able to apply for the Fidelity-MBNA co-brand 529 College Rewards credit card. This card gives you 2% back on practically anything you charge to the card. In addition, it also offers you online Bill Payment service which lets you pay many merchants including even your mortgage or electric bill (but no rewards for these). The rewards are accumulated and posted to the 529 plan once every calendar quarter.
The overall expense ratios of this plan are on average about 1%. These are reasonable numbers but not particularly attractive. The following table shows the expense ratios of the funds and the account fees:
Note from point (6) that there is an account maintenance fee of $20 a year but this can be easily avoided by setting up a systematic contribution of at least $50 a month. This is the amount I am contributing to this plan.
To summarize, the main benefit for me to contribute to this plan is to get the credit card rewards. By my calculations, I would get about $500 to $600 in rewards a year from this card, almost the same as the amount I would contribute from systematic contributions (12 x $50 = $600).
Account 2: Ohio state’s College Advantage Plan
The second account is where I do my serious college savings. This plan was selected based on its very low costs and a respectable range of investment options.
I was interested to have the following asset allocation for the investment plan: 30% US Large-Cap equity, 30% US Small-/Med-Cap equity, 30% International equity and 10% fixed income. With that in mind, I started looking at the various plans available. Some of the plans I considered are tabulated below.
The Utah plan has always been touted as the cheapest 529 plan but what I found was that based on my options, it is not the cheapest (especially if you are not a resident in Utah). Besides, I dislike its confusing account fees, and I think this could actually be the reason why some think it is the cheapest: simply because the various UESP add-on fees were not accounted for.
The Vanguard 529 (Nevada) plan is interesting for those who like to see their 529 account with one Vanguard login. The funds in this plan can also be counted towards the qualification for Voyager / Flagship status. This is quite an attractive benefit.
Those interested in DFA’s funds can also look into West Virginia’s SMART529 plan. The fees range from 0.75% to 1.05%.
In the end, I found that the plan that makes the most sense for me is Ohio’s College Advantage Plan. The total expense ratio for this plan is only a mere 0.352%. Besides, I see no reason paying almost double the expense ratio for the Vanguard 529 plan just to get the ability to qualify for Voyager / Flagship.