Pressure on to reduce 529 college savings plan fees – National Consumers League

To their credit, a handful of states have moved to improve performance, expand investment choices, and lower fees on the funds parents invest in 529 college savings plans. Nevada is replacing its 529 investment manager with another investment group with lower fees; the group will also add other fund choices; California closed its Fidelity Investment 529 plan and transferred the funds to another manager. Wisconsin is following suit. The beauty of a 529 is that returns from the investments are tax-free if used to pay for qualifying higher education expenses.

What is interesting is that pressure to lower fees for parents investing in 529s is reducing the number of managers interested in getting the business. When California put out their 529 for bids last year, no investment firms applied. In 2011 parents put $18.5 billion into 529 plans. The average new account totaled at $4,565. Average fees in one state – Arkansas – at 0.6 percent are a lot lower than fees on the average adviser-sold investment account, which run more like 1.14 percent of investments.

This close scrutiny of fund options and fees made on behalf of parents is exactly what we should be expecting from those who choose where 529 money is invested. I found this story interesting because it would be great if all investment advisers or funds could be as closely scrutinized for excessive fees and broader choices as states are doing for their 529 parents of college-age kids who have invested in their child’s education.