Julie Jason's Your Money: Gift of a future education? Be sure to explore the costs tied to 529 planBy JULIE JASON December 01. 2017 7:47PM
The expenses for a 529 plan need to be understood for good reason — they vary from plan to plan, and they can affect returns. Doing a comparison involves some effort, but there is help. A free online tool provided by FINRA, the Financial Industry Regulatory Authority, is a good place to start. FINRA is the largest independent regulator for all securities firms doing business in the United States.
By using the tool, you’ll be able to compare and contrast two plans at a time. The end product will be an apples-to-apples comparison of 1) sales charges (front-end load); 2) deferred sales charges (back-end load); 3) enrollment or other one-time fees; 4) annual maintenance fees; 5) conversion fees and expenses.
You’ll see a bottom-line comparison that goes further than just expenses. You’ll also see foregone earnings, or “the amount you could have earned on your investment if the money spent on fees and expenses was invested.”
That’s a useful number. Quoting from the tool: “For example, if you invest $10,000 in a fund with a 5 percent sale charge, then your net investment is $9,500. If the fund earned a return of 10 percent, and you held the shares for one year, then you did not receive $50 (10 percent x $500) in earnings. The $50 is the money you did not earn because your $500 was not invested. The payment of total annual fund operating expenses and other expenses and fees also would result in foregone earnings.”
To use the calculator, you’ll need information about the plans you want to compare. You can link to each state’s 529 plan through a portal called the College Savings Plans Network at www.collegesavings.org.
If you have any problems searching for information, check the glossary provided by the FINRA calculator. And when sifting through 529 plan disclosure documents, start with the basic “enrollment information.” Look for fees and expenses in the table of contents. Factors other than costs enter into the decision to choose one 529 over another.
Once you do your comparison, that will help you assess whether one plan you are considering is more costly than another. There are other considerations, of course. This is how FINRA sees them:
• The tax implications of choosing an in-state vs. out-of-state plan.
• Whether to invest in a 529 plan through a professional account manager or through direct investment.
• The type of investment choices available.
• If the plan’s asset allocation is suited to your goals.
• The risk of the plan.
• The previous performance of the plan.
• The affect of the 529 plan on financial aid.
You’ll find the tool at goo.gl/1kXGJb. The glossary of terms also can be found there.
If your family culture involves helping children and grandchildren prepare for their financial futures, now is the time to think about college savings vehicles. If you have questions about or experiences with 529 plans, please email me at firstname.lastname@example.org.
Julie Jason, JD, LLM, a personal money manager at Jackson, Grant of Stamford, Conn., and author, welcomes questions and comments to email@example.com.