Tuesday, October 30, 2007

529: Where age-based plans make sense

529 age-based plans have dominated this saving for college market. This is one of the few segments where time-based plans make sense for most investors, which is why more then 70% of funds in some plans are held in age-based 529 funds. The automatic adjustment as the child approaches college age help parents from regularly having to re-balance and monitor these funds.

The regulatory oversight from the states for their 529 plans have helped avoid the time-based college saving plans from becoming a pyramid of fees; a problem common in retirement fund-of-funds offerings.

The well-defined timeframes associated with saving for college are also beneficial to making these age-based plans successful; when a youngster is in 8th grade it is pretty clear how many more years until they go to school.

The lack of multi-level fund fees in many age-based 529 programs does not mean that parents should ignore the other fees found in many state plans such as yearly maintenance fees. Many plans are still charging $15 to $50 maintenance fees. It is very easy for a small 529 savings plan of $500 to lose money each and every year after fees are considered. It is very easy to land up with a balance of well under $400 in some plans after years of savings and “gains”, once the fees are subtracted. Take a close look at the fee structure in any 529 offering that you are considering; whether the plan is age-based or not.

Age-based funds dominate 529 plans