Saving for College - Help choosing 529 plan

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Saving for College - Help choosing 529 plan

Post by mwow83 »

My wife and I are expecting our first child next February. We have started looking into different investment vehicles to help save for college. We live in Florida - so there isn't any tax benefits with contributing to any plan. It appears the options are either purchase a prepaid plan, invest into a 529, invest into coverdell education savings account, or pay cash in the future.

IMO, the Florida Prepaid plan doesn't seem like a great deal. I believe the 529 would be our best option (although I'm certainly open to hear otherwise). We're looking to pay for 75% of our child's college. I've read a lot about folks purchasing 529 plans from Utah, New York, or Nevada because of the low fees. I also read a 2013 Morningstar Analyst Ratings Report http://corporate.morningstar.com/us/doc ... -Chart.pdf that said AK, MD, NV, UT plans are best value - given fees and performance.

Admittedly, I'm a little confused. Which plan should we select, do we invest in an age based fund or setup an account with a custom mix of investments and modify every few years accordingly? What would be the correct fund allocation? Thanks in advance for the help.
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Saving for College - Help choosing 529 plan

Post by Leeraar »

mwow83 wrote:My wife and I are expecting our first child next February. We have started looking into different investment vehicles to help save for college. We live in Florida - so there isn't any tax benefits with contributing to any plan. It appears the options are either purchase a prepaid plan, invest into a 529, invest into coverdell education savings account, or pay cash in the future.

IMO, the Florida Prepaid plan doesn't seem like a great deal. I believe the 529 would be our best option (although I'm certainly open to hear otherwise). We're looking to pay for 75% of our child's college. I've read a lot about folks purchasing 529 plans from Utah, New York, or Nevada because of the low fees. I also read a 2013 Morningstar Analyst Ratings Report http://corporate.morningstar.com/us/doc ... -Chart.pdf that said AK, MD, NV, UT plans are best value - given fees and performance.

Admittedly, I'm a little confused. Which plan should we select, do we invest in an age based fund or setup an account with a custom mix of investments and modify every few years accordingly? What would be the correct fund allocation? Thanks in advance for the help.
You should max. out a Coverdell first. Unfortunately, Vanguard does not offer them. The spending conditions from a Coverdell are more permissive than from a 529.

Next, fund a 529. I used the one at Vanguard, invested in LifeStrategy Moderate. Be careful of investing too much in a 529.

Also, be sure to understand there are two 529: In the first, you are the owner and the child is the beneficiary. The money is yours, you can change the beneficiary. In the second, the child is the owner and the beneficiary. You are the custodian / trustee and the beneficiary cannot be changed.

The second type is appropriate if the money does actually belong to the child, for example, gifts from relatives.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Saving for College - Help choosing 529 plan

Post by mwow83 »

Leeraar wrote:You should max. out a Coverdell first. Unfortunately, Vanguard does not offer them. The spending conditions from a Coverdell are more permissive than from a 529.
Any advice on where to purchase the Coverdell from? I'm such a fan of Vanguard with the low fee options. I hope the Coverdell has similar options.
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Saving for College - Help choosing 529 plan

Post by Leeraar »

mwow83 wrote:
Leeraar wrote:You should max. out a Coverdell first. Unfortunately, Vanguard does not offer them. The spending conditions from a Coverdell are more permissive than from a 529.
Any advice on where to purchase the Coverdell from? I'm such a fan of Vanguard with the low fee options. I hope the Coverdell has similar options.
Call Vanguard and ask. I think the reason they stopped offering it was because Congress was tampering with the rules so much. But, Coverdells were restored and made "permanent" by the fiscal cliff legislation.

Otherwise, I don't know. Try Fidelity or some place where you can get low cost funds you select yourself.

Same thing with the 529. At Vanguard, you can select the investments yourself. I use LifeStrategy Moderate and have not bothered with changing the asset allocation over time.

My guess is, if you can save $300 per month you should be in good shape.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Saving for College - Help choosing 529 plan

Post by mwow83 »

What's the benefit to funding a 527 plan vs say funding the Vanguard Balanced Index Fund Investor Shares fund? Since Florida has no state income tax there are no bennies for the 527... at least I don't think.
keystone
Posts: 735
Joined: Tue Aug 28, 2012 12:34 pm

Re: Saving for College - Help choosing 529 plan

Post by keystone »

I don't get why that list and others put MD among one of the best plans. I live in MD and the plan didn't seem worth the high fees despite a state state tax deduction. Last I checked, a 50/50 type balanced fund had a fee around. 70%.
Leeraar
Posts: 4109
Joined: Tue Dec 10, 2013 7:41 pm
Location: Nowhere

Re: Saving for College - Help choosing 529 plan

Post by Leeraar »

mwow83 wrote:What's the benefit to funding a 527 plan vs say funding the Vanguard Balanced Index Fund Investor Shares fund? Since Florida has no state income tax there are no bennies for the 527... at least I don't think.
First off, it's a 529. When you use it to pay qualified education expenses, the earnings are not taxed (by the Feds).

http://www.bogleheads.org/wiki/529_plans

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
User avatar
The529guy
Posts: 610
Joined: Fri May 23, 2014 1:08 am

Re: Saving for College - Help choosing 529 plan

Post by The529guy »

The Morningstar 529 plan evaluation was discussed earlier in the year: http://www.bogleheads.org/forum/viewtop ... st=2112369. I would not base any decisions on its conclusions.

For Coverdell, consider TDAmeritrade or Schwab (see their lists of commission-free ETFs).

For 529, consider New York, California, Vanguard (Nevada), and Utah plans.

- Neither Fidelity nor Vanguard offer Coverdell plans
- The 529 plan offered through Fidelity is not a good deal
- The Maryland and Alaska plans are both high-fee

I'm using the New York (Vanguard) plan as a non-resident. I would not hesitate to use the California (TIAA-CREF) plan, either. Those two have the lowest fees. If you want more investment options, the Vanguard (Nevada) and Utah plans are good choices, too.
Lafder
Posts: 4127
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Saving for College - Help choosing 529 plan

Post by Lafder »

Congratulations on your upcoming parenthood!

Be sure you maximize your own retirement accounts first.

I also consider paying down my mortgage investing for college since the $ that goes to mortgage can be used for college once the debt is paid off.

When I looked into 529s I was discouraged by the fees, but I may relook.

lafder
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Saving for College - Help choosing 529 plan

Post by mwow83 »

I greatly appreciate the comments. I’ve spent a few hours searching the forums and reading about each of the following plans that I’ve outlined below. I plan to select one as my path forward – just need suggestions on each and recommendations on asset allocations.

Utah 529 Plan:
Current aged-based investment option fees range from 0.16 to 0.224%.
Customized investment option fees vary between 0.2 to 0.603%.
http://www.uesp.org/InvestmentInfo/FeesExpenses.aspx

New York 529 Plan:
Expense fees on age-based or individual selections are 0.16%.
I can select one of the automatic set it and forget age based funds or select 5 from this list:
https://www.nysaves.org/content/individualoptions.html

Nevada 529 Plan:
Expense fees on aged-based or individual selections are 0.19 to 0.49%.
https://personal.vanguard.com/us/funds/ ... me?View=EF

Is a higher customized asset allocation portfolio worth the higher fees?
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Saving for College - Help choosing 529 plan

Post by Grt2bOutdoors »

mwow83 wrote:I greatly appreciate the comments. I’ve spent a few hours searching the forums and reading about each of the following plans that I’ve outlined below. I plan to select one as my path forward – just need suggestions on each and recommendations on asset allocations.

Utah 529 Plan:
Current aged-based investment option fees range from 0.16 to 0.224%.
Customized investment option fees vary between 0.2 to 0.603%.
http://www.uesp.org/InvestmentInfo/FeesExpenses.aspx

New York 529 Plan:
Expense fees on age-based or individual selections are 0.16%.
I can select one of the automatic set it and forget age based funds or select 5 from this list:
https://www.nysaves.org/content/individualoptions.html

Nevada 529 Plan:
Expense fees on aged-based or individual selections are 0.19 to 0.49%.
https://personal.vanguard.com/us/funds/ ... me?View=EF

Is a higher customized asset allocation portfolio worth the higher fees?
It's only worth the higher fees if it outperforms it's given indices by an amount greater than the cost of the funds. No one knows what the market will do tomorrow, for simplicity purposes, it's easier to select one of the age-based allocation plans so long as it meets your needs and risk tolerance. Some folks are fine with being equity heavy until the age of 18, others are not. I use the Utah 529 plan, Moderate Age-Based plan (domestic and internationally diversified) and have been satisfied thus far with both performance and their continued diligence in fine tuning allocations and in keeping expenses down for it's participants. Some of their other age-based plans have better performance based on being heavily allocated to domestic holdings but I can't say the out-performance has been one that has "shot out the lights" thus far.
The NY529Direct Plan has gotten better over time, when it first launched the investment manager was TIAA-CREF, the fees were much higher and the performance was ehh, not so great. Since switching over to Upromise and Vanguard, things have gotten better.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Saving for College - Help choosing 529 plan

Post by Grt2bOutdoors »

Lafder wrote:
I also consider paying down my mortgage investing for college since the $ that goes to mortgage can be used for college once the debt is paid off.

When I looked into 529s I was discouraged by the fees, but I may relook.

lafder
That works if you have stable low risk of unemployment, otherwise you may find yourself with a paid off abode but no extra money to be used for college once the debt is paid off. I don't believe you can obtain a home equity loan if you have no source of repayment.

A 529 plan with a .17% annual er is about as cheap as they come especially when you consider you might have some very valuable tax-free gains to go with it down the road.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Post Reply