Today I want to drill down a bit further and look at which 529 plans are the cheapest. I’m particularly interested in this topic because a recent Morningstar study revealed that mutual fund expense ratios are an excellent predictor of mutual fund performance.
Thus, assuming that you’re looking at plans that offer similar investment styles, you should strongly consider the costs associated with each. Of course, there are other factors such as state tax breaks that can offset higher costs (at least to a point) but costs are still a very important factor.
In general terms, you’ll find that direct-sold 529 plans are significantly cheaper than advisor-sold plans, which are typically laden with high fees and sales loads. But amongst the direct-sold plans, there is a good bit of variation in costs.
What follows are the ten cheapest 529 plans in terms of annual account fees (most are zero) and investment expenses. The data come from a study by SavingForCollege.com, and I’ve also included the current “star rating” (out of five) for residents and non-residents in brackets after each entry.
- Louisiana START Saving Program [Residents only, 4.5]
- Ohio CollegeAdvantage 529 Savings Plan [5.0, 4.5]
- Virginia Education Savings Trust (VEST) [4.5, 4.0]
- Utah Educational Savings Plan (UESP) [5.0, 4.5]
- Fidelity Arizona College Savings Plan [4.0, 4.0]
- California ScholarShare College Savings Plan [4.0, 4.0]
- Delaware College Investment Plan [4.0, 4.0]
- Massachusetts U.Fund College Investing Plan [4.0, 4.0]
- New Hampshire UNIQUE College Investing Plan [4.0, 4.0]
- Kansas Learning Quest 529 Education Savings Program [4.5, 4.0]
Note that the Kansas plan offers both a direct-sold and an advisor-sold version, so the less expensive direct-sold expense data was used.
If you’ve been contributing to a 529 plan, I’d love to hear the details. Which plan? How did you choose it? And how do you like it?
And remember… You have until the end of the year (12/31) to fund a plan for 2010. While some states will actually give you a state income tax deduction up until the filing deadline, your contribution will count against the gift tax exclusion for the year in which it was made.