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Did some research on 529 plans for our new child since we now live in a different state when we had our first. Our current state has a bad plan and doesn't offer any benefits for signing up, so my search went nationwide. See attached file. I looked at every state (except poor Wyoming that doesn't have a 529 plan) and only included the ones that had any hope of having a weighted average total expense ratio of <0.20%. For the ones I included I dove into the disclosure documents to get the details. In some cases the numbers were a bit different from what was advertised on www.savingforcollege.com. Tried to use the 3 fund portfolio as my guide, but allowed for some extremes of asset allocation (stocks only). I didn't include any of the age-based funds because they typically have fees higher than the 0.20% threshold and are not what I'm interested in.
The results were interesting. If you are a RI resident, congratulations. You win - markedly lower rates apply to you. California, Michigan and Arizona are my favorites otherwise, regardless of residency status. I put DE/NH/MA behind them because you can't change account owners or they have a lower contribution total, even though the fees are the same as AZ (all run by Fidelity). Nevada's expenses have gone up since I last looked. They offer a ton of great fund options, but their fees don't justify getting cute with asset allocation in my mind. Virginia wasn't bad, but their disclosure document stated that you basically have to exhaust the money in the account by 30 years from the beneficiary's 18th birthday. That will suffice for most people, but if you're trying to move additional funds to a new beneficiary and avoid paying the generation skipping tax you might not be able to get it all out in time. Uncommon, I know. NY also required use of at least some of the funds by the beneficiary's 21st birthday or they considered the funds "abandoned". If you communicate with them about the reasons why it's all good, but beware of this rule. These results seem to differ from the standard recommendations I've seen.
Curious to see if anyone has come across other information, problems, etc. that might change this rank order. Of course, none of this takes into account the specific tax advantages in your given state, which will may change your rank order. Only a few states (AZ, KS, ME, PA) allow a deduction for ANY 529 contribution, regardless of state. So if you're in one of those states (or like me where your state stinks) this list may be particularly useful since cost minimization w/ proper asset allocation should be your goal. Thoughts?
The results were interesting. If you are a RI resident, congratulations. You win - markedly lower rates apply to you. California, Michigan and Arizona are my favorites otherwise, regardless of residency status. I put DE/NH/MA behind them because you can't change account owners or they have a lower contribution total, even though the fees are the same as AZ (all run by Fidelity). Nevada's expenses have gone up since I last looked. They offer a ton of great fund options, but their fees don't justify getting cute with asset allocation in my mind. Virginia wasn't bad, but their disclosure document stated that you basically have to exhaust the money in the account by 30 years from the beneficiary's 18th birthday. That will suffice for most people, but if you're trying to move additional funds to a new beneficiary and avoid paying the generation skipping tax you might not be able to get it all out in time. Uncommon, I know. NY also required use of at least some of the funds by the beneficiary's 21st birthday or they considered the funds "abandoned". If you communicate with them about the reasons why it's all good, but beware of this rule. These results seem to differ from the standard recommendations I've seen.
Curious to see if anyone has come across other information, problems, etc. that might change this rank order. Of course, none of this takes into account the specific tax advantages in your given state, which will may change your rank order. Only a few states (AZ, KS, ME, PA) allow a deduction for ANY 529 contribution, regardless of state. So if you're in one of those states (or like me where your state stinks) this list may be particularly useful since cost minimization w/ proper asset allocation should be your goal. Thoughts?
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