College will cost an arm and a leg (and maybe an ear and an eyeball, too) by the time your little ones graduate from high school. Start saving now, and consider using a 529 investment account to get some great tax advantages.
But don't let the savings vehicle you choose drain away money you will need later for books, supplies, and pizza. Take a close look at your plan's fees. In general, the expenses charged by 529 plans have been falling as more people sign up and invest in them, but some plans still take a significant bite.
In a study of 529 fees published earlier this year, Bankrate.com's (Nasdaq: RATE ) Savingforcollege.com compared the costs over 10 years for each of the available direct-sold 529 savings plans. These costs cover expenses charged by each plan's investment funds, as well as administrative, managerial, and other fees associated with college savings plans. It compares the two lowest-cost investment options and the two highest-cost investment options for each savings plan.
The survey found that Louisiana and Utah top the list for affordable plans, and both offer good examples of why investors must look carefully at any program's fees. You'll need to know not only the expenses for the funds you choose, but also the plan's extra costs. You'll also need to find out whether you qualify for the low-cost investment options.
Ready to move?
Louisiana and Utah made it to the top of the list because both states offer no-cost fixed-income savings options managed by their state treasurers. You must be a resident of Louisiana to take advantage of the top-ranked savings plan. If you're not a Utah resident, you'll be charged a quarterly account maintenance fee.
Even a cursory glance at the survey's list of investments quickly shows the vast range among these plans. Among the lowest-cost plans, investors may be charged as little as $0 (in those Utah and Louisiana fixed-income plans) to as much as $2,475 in Montana, which has a plan managed by Pacific Life.
The list of highest-cost investment options ranges from the still-affordable $320 in Louisiana (again) to investments that could cost more than $2,000 in Washington, D.C., Nebraska, and Montana. Among the most costly, you'll find programs managed by JPMorgan Chase (NYSE: JPM ) , Upromise, and T. Rowe Price (Nasdaq: TROW ) . When shopping around, remember that low-cost investments can become a bad deal if the program tacks on a lot of extra fees.
Staying close to home
Before we all pick up and move to Louisiana, remember that there are a lot of affordable options in between those extremes.
While searching for a place to put your money, start with your own state. A state tax deduction might make a slightly more costly plan a good deal. You might also qualify for some fee waivers. If you don't like what your state offers, use the list to start shopping around for a better alternative. You can compare 529 plans using tools at Savingforcollege.com or the College Savings Plan Network.
Most importantly, get started. If you need more help, study up in the College Savings Center, then find out: