Friday, November 03, 2006

Setting up a new 529 plan and the stupidity of Illinois' 529 plan

At my investment advisor's recommendation, I set-up an IL 529 plan to take advantage of the IL state income tax credit for 529 contributions. We had discussed the many problems with this plan, but felt the tax credit was the right thing to seek right now - despite the higher fees, limited fund selection and rigid unfriendly rules.

It was easy to set the plan up at Bright Start Savings. Though I had to fill out the forms multiple times. The website times out too quickly. Furthermore if you click help, you leave the application form and have to start over again. Overall - it's one of the most poorly designed sites from a financial instituation I've seen since 1997 (they were all bad back then).

After setting up my account I specified an electronic draft on my money market account to fund the investment and then printed out the paperwork to rollover our upromise account.

On reading the paperwork for the Bright Start Savings program I noticed the ridiculous restrictions the plan places on investors. For example, investors can only change investment selections once per year. How unfair to the investor. If it weren't for the tax benefit - I would never invest in such a program.

There were numerous additional restrictions on administrative issues, transfers and roll overs. Furthermore, you can only have one beneficiary per account - unlike the Upromise plan, where you can have multiple sub-accounts for different beneficiaries. If you wanted to change your allocations after your first time, you would need to rollover your account into a new accont - but why go through a rollover?

With such ridiculous restrictions and a fairly high expense ration of almost 1%, I predict I keep my money in the plan for very long. It really seems like the plan sponser wanted to minimize administrative costs at the expense of customer service by limiting investor options.

Has anyone else tried Illinois' Bright Start Savings Plan?



Anonymous said...

I too am in this plan..cause I live in Illinois. I am not happy with it either.

I can't tell you how many times I have had to call these people for some idiotic mistake. Like turning my baby into the last plan prior to college. He lost growth here. Did they give me the losses back - no.

What I am trying to say, is be careful. Reveiw your info often. Make sure the cash is in the right age group each and every statement. If you have multiple accounts, like me, make sure you reveiw all the details for each account-immediately after you receive the start up info.

Plus, why wouldn't our state link directly to Upromise? It is such a headache to have to write Upromise - request a payment. Then receive by mail and reissue monies to Bright Starts. It is a lot of work for little cash, but still free cash. When I started our accounts, they did link in with automatic transfers when your balance hit $25 or $50.

Dimes said...

I'm not going to have children until I better understand 529 plans. Surely you can move it to another state's plan (you'll lose the state tax deduction, but some states aren't very generous with that anyway) and you may have a better time. Good luck.

YeOleImposter said...

Here in Washington state there is no state income tax so get to choose from any other state's 529 plan. Trying to figure out which one makes the most sense.

Money & Investing Dogberry Patch

Anonymous said...

Do your own research. Advisor may be selling you plans similar to load fund. I use directory and news from and do my own research.
We are happy with plan from Nebraska

makingourway said...

Very good point. In this case my advisor is fee only and does not sell products, however, I also did my independent research. I found the 529 at Vanguard, which is a Nevada plan. It has similar low expense index funds to other Vanguard sponsored plans. Nevada actually has lower expense ratios for some of the better index products than both New York and Nebraska. NV is about 0.55%, while NY is 0.56% and NE is 0.65% - 0.7%.

Anonymous said...

Throw in that the returns just suck. I have put in $48,000, and the plans have turned that into $28,000. I do not plan on ever putting in any more money ever. The tax credit is not worth the inept investment management.