NEW YORK (
Since the financial meltdown began, plans have taken steps to improve. Many 529 plans have cut expenses. Some funds have lowered risks. "In the last 12 months, 529 plans have become more compelling investments," says Laura Pavlenko Lutton, a Morningstar analyst.
Named for Section 529 of the Internal Revenue code, the plans have $119 billion in assets. The plans are designed for families who want to sock away money that can be used for college tuitions. Under the system, states sponsor plans and hire money managers to oversee the assets. Big players in the business include fund companies, such as Fidelity Investments, Franklin Resources (BEN), and T. Rowe Price (TROW). The 529 investments typically cost a bit more than comparable mutual funds, but savers like the plans because of the tax advantages. Earnings of the plan investments are not taxable -- provided the money is used to pay for education.
The wave of cost cutting began in December 2009 when Fidelity shaved its total annual fees on some investment options from 0.80% to 0.60%. Vanguard reduced its costs from 0.44% to 0.25%. Many other companies joined the cost-cutting spree.Besides reducing expenses, some plans have sought to reach nervous parents by offering safer investment choices. TIAA-CREF rolled out conservative funds that have big allocations to fixed income. Plans sponsored by Massachusetts and other states offer FDIC-insured investments. Should you open a college savings account? That depends on whether you think your child will attend college. If the child does not enroll, you could owe Washington a 10% penalty on the money that has been put into a college fund. Still, many states offer considerable incentives for families to participate in the 529 plans.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV