529 plans indexed options

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529 plans indexed options provides information on 529 plans utilizing index funds. For an examination of 529 plan essential features, please refer to 529 plans.

The investment of college savings in a 529 Savings plan should follow the fundamental principles embedded in the Bogleheads investment philosophy: emphasis on low investment costs; broad diversification both within and among asset classes; the use of low cost index funds when available; and careful consideration of risk. Emphasizing low costs suggests that 529 savings plan investors should eschew the advisor sold 529 plans and select among plans that are directly sold.

Index options in 529 plans

Many states now offer indexed portfolios in 529 savings plans. States have the option of offering indexed portfolios in the three basic 529 saving plan strategies:

  • Age-based funds that provide balanced fund of fund portfolios with allocations that change over time, lowering stock market allocations as the time to college matriculation shortens. Many plans offer age-based plans labelled Aggressive, Moderate, and Conservative, each with different stock/bond allocations.
  • Static allocation funds provide balanced, usually fund of fund, portfolios that maintain a fixed asset allocation policy. These portfolios can hold a bond/stock mixture or can be exclusively devoted to stocks (as an example, a stock portfolio consisting of a Total stock market index fund and a Total international stock market index fund) or bonds (as an example, a bond portfolio consisting of a Total bond market index fund and an inflation-indexed bond fund).
  • Individual funds provide single index fund portfolios (examples include an S&P 500 index fund, an International index fund, a REIT index fund, or a bond index fund).

The following table provides information and links to state 529 plans and the availability of indexed offerings. Since index fund fees are usually low, the table provides expense information on 529 plan program manager and administrative fees, which produce the main differences in comparative plan costs. Some plans are only available to in-state residents (see notes). Other notes highlight plans that offer only one index fund in the plan; as well as plan portfolios that are mostly indexed but contain a small allocation to active funds.


Index options in 529 plans
529 plan Age-Based funds Static allocation funds Single asset class funds Plan link Morningstar link Fee Disclosure Program manager & Administrative fees Index portfolio manager
Alabama Yes Yes Yes link link Disclosure 0.25% Vanguard
Alaska No Yes No link link Disclosure 0.20% T. Rowe Price
Arizona Yes Yes Yes link link link 0.15% Fidelity
Arkansas Yes Yes No link link link 0.55%; 0.75% [1] Vanguard
California Yes Yes Yes link link link 0.10% Tiaa-Cref
Colorado Yes Yes Yes link link link 0.48% [1] Vanguard
Connecticut Yes [2] Yes No link link link 0.19% Tiaa-Cref
Delaware Yes Yes Yes link link link 0.15% Fidelity
District of Columbia [3] No No Yes [4] link link link 0.15% State Street
Florida No No No link link n/a 0.75% [1] n/a
Georgia Yes [2] Yes [2] No link link link 0.21% Tiaa-Cref
Hawaii Yes Yes Yes link link link 0.75% [1] Vanguard
Idaho Yes Yes No link link link 0.75% [1] Vanguard
Illinois Yes Yes No link link link 0.14% Vanguard
Indiana Yes No Yes link link link 0.29% and 0.44% Vanguard
Iowa Yes Yes Yes link link link 0.28% [1] Vanguard
Kansas Yes Yes Yes link link link 0.20% Vanguard
Kentucky Yes [2] Yes [2] No link link link 0.47% Tiaa-Cref
Louisiana[3] Yes No Yes link link Disclosure 0.00% Vanguard
Maine Yes Yes Yes [4] link link Disclosure 0.07% BlackRock, iShares
Maryland No No Yes [4] link link Disclosure 0.20% T. Rowe Price
Massachusetts Yes Yes Yes link link link 0.15% Fidelity
Michigan Yes [2] Yes [2] No link link link 0.13% Tiaa-Cref
Minnesota Yes [2] Yes [2] No link link link 0.5125% - 0.6125% [1] Tiaa-Cref
Mississippi Yes [2] Yes [2] No link link link 0.50% Tiaa-Cref
Missouri Yes Yes Yes link link link 0.21% - 0.295% Vanguard
Montana No Yes Yes link link link 0.67% and 0.77% Vanguard
Nebraska Yes Yes Yes link link link; link; link 0.29% Vanguard, State Street
Nevada Yes Yes Yes link link link 0.25% - 0.55% [1] Vanguard
New Hampshire Yes [2] Yes Yes link link link 0.15% Fidelity
New Jersey[3] No No Yes [4] link link link 0.20% Franklin-Templeton
New Mexico Yes Yes No link link link 0.15% Dreyfus, Vanguard, Tiaa-Cref
New York Yes Yes Yes link link link 0.17% [1] Vanguard
North Carolina Yes Yes Yes link link link 0.25% Vanguard
North Dakota Yes Yes No link link link 0.85% [1] Vanguard
Ohio Yes Yes Yes link link link 0.14% and 0.19% Vanguard
Oklahoma Yes [2] Yes [2] No link link link 0.40% Tiaa-Cref
Oregon Yes Yes [2] Yes link link link 0.25% Tiaa-Cref
Pennsylvania Yes Yes Yes link link link 0.44% - 0.46% Vanguard
Rhode Island[3] No No Yes link link link currently n/a Vanguard
South Carolina[3] Yes Yes Yes link link link none Columbia
South Dakota[3] No No No link link link 0.70% n/a
Tennessee Yes Yes Yes link link link 0.35% [1] DFA, Vanguard
Texas Yes Yes Yes link link link 0.40% - 0.47% Vanguard, Tiaa-Cref, Dreyfus
Utah Yes Yes Yes link link link; Disclosure 0.15% and 0.20% Vanguard
Vermont Yes [2] Yes [2] No link link link 0.31% - 0.45% Tiaa-Cref
Virginia No Yes Yes link link Disclosure 0.20% Vanguard
West Virginia Yes Yes Yes link link link 0.03% - 0.25% Vanguard
Wisconsin Yes Yes Yes link link link 0.08% Tiaa-Cref

Since most states offer tax benefits for 529 plan contributions, an investor should first examine the home state plan and consider the plan options, expenses, and tax savings before considering out-of state plans.:[5]

One can determine the breakeven point where using a lower cost plan option becomes cheaper than a state plan providing tax deductible and/or matched 529 contributions by using the following factors.

  1. The tax savings amount (Deductible contribution x marginal state tax rate) + match.
  2. The cost differential between the plan and the lower cost plan.
Dividing (1) by (2) provides the capital accumulation point where the lower cost plan subsequently overtakes the tax benefit.

A number of states now recapture deducted 529 contribution taxes if a plan is transferred to an out of state plan.

States with no tax deductions or matching contributions

The following states have 529 plans but do not offer any tax deductions or matching contributions for donor contributions to a 529 savings plan. Therefore, residents in these states should select from among the lowest cost plan providers.

States with no tax deductions States with no tax deductions States with no tax deductions


States offering deductible contributions for both in-state and out-of-state plans

These states offer the same deduction in and out of state, so investors should choose from among the lowest cost plans, but remember to claim their deduction.

  • Arizona provides a deduction for both in-state and out-of-state 529's.
  • Kansas provides a deduction for both in-state and out-of-state 529's.
  • Maine provides a deduction for both in-state and out-of-state 529's.
  • Missouri provides a deduction for both in-state and out-of-state 529's.
  • Pennsylvania provides a deduction for both in-state and out-of-state 529's.

Notes

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 Fee includes investment management fee.
  2. 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 2.14 2.15 2.16 Portfolios primarily indexed.
  3. 3.0 3.1 3.2 3.3 3.4 3.5 Plan closed or restricted for non-residents.
  4. 4.0 4.1 4.2 4.3 Only available option is either: (1) an S&P 500 index fund; or (2) a total market index fund.
  5. For a complete look at state tax deductions and matches for 529 plan contributions see State Tax Deductions for 529 Contributions

External links