Savingforcollege.com: 529 Study Identifies Lowest-Cost, College-Savings Plans

Feb.14, 2008 in Market Outlook

ROCHESTER, N.Y., Feb 14, 2008 /PRNewswire via COMTEX/ — Savingforcollege.com
LLC, the premier Internet destination for objective information about 529 college
savings plans, today announced that the least-expensive 529 plans available
nationwide are offered by Ohio, Illinois, and North Carolina. That’s according to
Savingforcollege.com’s 529 Fee Comparison Study, recently updated for 2008. The
study examined direct-sold 529 college-savings plans from 49 states and the
District of Columbia. Plans sold through financial advisors were not included in
the study due to their more-complicated fee structures.

“There’s been a huge effort on the part of the states and their outside vendors
to bring down investor costs in 529 plans,” remarked 529 “guru” Joseph Hurley,
founder of Bankrate-owned Savingforcollege.com. “Our study identifies the plans
that have been most successful in achieving that goal,” Mr. Hurley added.

The report also identifies those states where residents have even lower costs in
the home-state 529 plan due to the waiver of annual account fees for state
residents.

Fees and expenses can have a significant impact on a college-savings fund. If the
annual return of the underlying investments in Plan A is 7 percent, and the plan
manager charges a fee of 20 basis points (0.20%), an investment of $5,000 today
will grow to be worth $16,340 in 18 years. If Plan B uses the same underlying
investments, but charges a management fee of 40 basis points, that same $5,000
investment will grow to $15,798, or $542 (3.4%) less than Plan A. The difference
can be even larger if Plan A uses less-expensive underlying investments (e.g.
index funds) than Plan B.

However, Hurley warns that fees are not the only factor in selecting a particular
529 plan. “The more important figure is the net performance of your 529 account
after all costs. I might pay more if I felt I could get better net returns
without taking on more investment risk,” stated Hurley. State tax and other
benefits are also important factors.

The comparisons are based on the 10-year projected costs of a $10,000 investment,
as reported by each 529 plan in its official program offering materials. The
report can be accessed at www.savingforcollege.com/529_fee_study

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