choosing 529

[EM_INDY]

Glad to see some of you are also using fidelitys plans. I didn't understand why I never saw them mentioned in the same breath as the other best plans out there. The New Hampshire fees for TSM and their International index fund are the same as for Massachusetts and seem competitive with anything else I've seen with ny/Utah/Nevada which always get mentioned. I do Indiana up to 5k (gets me 1,000 off my state taxes) and then anything after that planning to do in fidelity. Added bonus is I can divert our 2% rewards from our fidelity visa automatically into the 529s as well and split it up as many ways as you want for a little bit extra!

[ENT Doc]

I initially had similar targets, but my concern regarding education expenses alone is that $140K or so won't be enough.  If they get into a private school charging $50K+ in tuition alone (in today's dollars) that'll tear right through the savings.  I don't mind having my child take out some loans to take some personal responsibility for that decision, but if he wants to go to graduate school that's where the real pain begins.  As many of us know, someone in our line of work could easily rack up $250,000 of debt in the current environment from medical school.  Law schools and masters programs aren't much better on a per-year basis.  I dread what that will look like 5, 10 or 20 years from now - or for their children.  You can use the 529 money for grad school, and you can transfer the money to any relative up to a first cousin with no penalty.  Heck, I've even heard of people trying to buy an apartment to live in with the 529 money, calling it "room and board", only to later rent it out as an investment property.  As long as the fees are kept low it's really a great investment and money transfer vehicle.  Best of luck with your situation!

[TheGipper]

Morningstar's 529 ratings (like their mutual fund ratings) are useless. Past performance data is useless. Average fee data is useless if it doesn't account for the fact that cheaper index fund options are available and active funds can be ignored.

MA Fidelity 529 is a great plan. In my opinion, the best. Only reason I may one day swap is if I need to transfer owner of the account (MA doesn't allow) or if I want a stable value fund option.

Only quibble with MA is that if you use the target date plans, they transition too quickly to a portion in safe money market funds for my taste. Sure it's not as fancy or customizable as UT, but do you really need those bells and whistles.

[DMFA]

Fidelity's Massachusetts plan is mostly self-manageable with lower fees than Vanguard's Nevada plan. Idk why Morningstar rates the former bronze and latter gold.

[GXA]

We also use Nevada.  I have been contributing $500 a month since soon after birth for each of our kids.  We are probably under-saving - I am a little leery of putting too much into these and having funds left over.  Each child should have 120,000 - 140,000 if their accounts by the time they are starting college.  A nice start that can be supplemented if it runs short.

We benefitted from dollar cost averaging through the downturn of 2009, and continuing to contribute all the way up to where we are now.

[VagabondMD]

TheGipper wrote:

What is the CO 529 Stable Value Fund guaranteeing these days. I remember thinking it was an attractive option to rollover into when kids approach college age. I think it was giving 2.6% when the finance buff wrote about it back in 2015.

What is it guaranteeing for 2017?

Click to expand...

2.59% in 2017. Last year was 2.54%.

[ENT Doc]

I think your approach to which 529 should depend on what you want the 529 to do for you/your child.  Some might want to only cover college and contribute just up to that amount.  I view it as a tax-efficient wealth-transfer mechanism that can span generations.  In that respect it is more unique than most other traditional investment options.  I fully expect estate tax limits to decrease in the future.  That being said, the more I can transfer now the better.  Education just happens to be a side benefit.  I fully expect to keep contributing to it once education funds are used.  Annual gifting of $28,000 per couple has the potential to exceed $1.5 million over the course of your lifetime for 1 child alone.  That's $1.5M that you just avoided adding to your estate - per child.  That means that four things matter to me - expense ratios, tax breaks, underlying investment options, and contribution limits.  Some states have very low contribution limits and other states have sums that are nearly $200K higher.  I prefer the latter because I can keep contributing.  You are able to transfer 529 funds to other states, which I am willing to do if superior options exist elsewhere in the future.  Likewise, some states offer tax breaks but may have higher ratios.  You need to find the right balance for yourself.  The savingforcollege website is excellent to start research, but you really need to go to each state's 529 page to get information.  Create a spreadsheet.  Pulled up some of them for you all here:

Utah:  https://uesp.org/wp-content/uploads/2016/09/UESPProgramDescription_dest.pdf

NY:  https://www.nysaves.org/home/why-ny-529-direct-plan/out-of-state-savers.html

NV:  http://www.nevadatreasurer.gov/CollegeSavings/CSP_Home/

 

There are other hidden treasures that may be superior depending on the state.  For example, I was in RI and as a resident, and I was able to get a Vanguard Total Stock Market Index fund for 0.04% asset management fees + 0.04% state fees.  That was the lowest I could find anywhere for an equity fund, plus their contribution limit was reasonably high at $395,000.  I'll likely switch that to another state in the future if they don't increase it.  Sometimes states offer tax breaks even for 529 contributions in other states.  Best of luck in your search - it's a lot of work, but it's worth it.  With another one on the way and not being in RI any more I've got my own research ahead of me again.  But if possible I recommend starting early and maxing out the gift contribution every year.  I don't advise a lump sum 5 year payment - not only from an investment strategy perspective, but you forgo certain tax breaks (limits imposed) I believe (not to mention it's a lot harder to come up with nearly $150,000 in cash).  The benefit of being able to use 529 money for education - college or beyond - and the ability to have that money grow and pass on tax-free to the next generation are invaluable, especially to high earners who can't expect to benefit from any socialist "free" education program should that ever come to pass.

[TheGipper]

What is the CO 529 Stable Value Fund guaranteeing these days. I remember thinking it was an attractive option to rollover into when kids approach college age. I think it was giving 2.6% when the finance buff wrote about it back in 2015.

What is it guaranteeing for 2017?

[VagabondMD]

As my high schoolers approach college age, I have been using the Colorado Stable Value 529 plan.

[TheGipper]

MA (lowest fees, fidelity index funds) > NY (lowest cost Vanguard fund plan) > UT (slightly higher fees but access to VG and DFA and more customizable).

[kabobjs]

Choosing a 529 plan if you do not get state tax breaks is kind of difficult.  Many people, including on this thread, mention Utah as a popular choice, since it offers a variety of investment options that are relatively low cost.  What I would add is if you have an investment strategy already in mind (i.e. you want to invest in a target fund, or have a specific allocation in mind), I would compare 10 or so of the cheaper plans, and figure out what your annual expense would be given the expense ratios of the funds you would chose and the annual administrative fee.  You often have to read the fine print to figure out the latter, but each plan has one.  To compare apples to apples, I would calculate the 1 year cost of a $10,000 investment.

Based upon this analysis (assuming you want to invest in index funds) I found California to have the lowest cost if I wanted to invest in a target fund or have a static stock/bond mix.  You can't customize the mix of investments like you can with Utah's, but they have a good variety of investment mixes.  If you're like most investors who want a basic portfolio of domestic/international equities and bonds, California's plan can give you this. I know everyone sings high praises for Vanguard (including myself), but California's plan is the cheapest.  Am I wrong about this?

[slo]

I have been using Utah's 529 since my oldest was born. They have a nice mix of Vanguard and DFA funds.

Recently, I was alerted by someone who told me that my 529s may be vulnerable to creditors in a med Mal suit. This source went on to tell me that some states protect these assets from creditors.

I've never been sued, but it's obviously a concern when practicing medicine. I've been trying to figure out how states differ in asset protection, and it's not easy to find. I'm a resident of California, so if I'm sued in CA, but my 529s are held in a state, like Alaska, that protects 529s from creditors, will those assets be protected?

Have any of you WCI readers factored this into your choice of 529 plan? I've been happy with Utah and don't want to switch plans, but if those assets are indeed at risk, perhaps I should move them.

Any thoughts on this?

[The White Coat Investor]

Utah is my favorite default for those with no state tax break. But Nevada and New York are also excellent plans. Morningstar ranks Utah, Nevada, and Virginia as gold plans this year. New York is a silver, along with Ohio, another perennial front-runner.

 

http://news.morningstar.com/articlenet/article.aspx?id=775806

[deeppizza]

We went with the Utah plan.  It offers both Vanguard as well as DFA funds which typically must be bought through a broker.  I also liked that it was much more customizable compared to other plans.  We typically contribute ~ 10K/year/child as well as any gifts from grandparents, family, etc...

[Docbeans]

If you have the ability to do so, frontloading the 529 is a good option since the money gets some time to compound. You can put up to 5 yrs worth at a time.