Saturday, December 16, 2006

Rescuing our college savings from Illinois's overpiced and inflexible Bright Start Savings Plan

In preparation for consolidating my retirement and brokerage accounts at Vanguard, I found a very interesting discussion and comparison of 529 plans.

My initial interest was spurred by the idea of consolidating as many of my holdings at Vanguard to accumulate price breaks on fund and account fees. I dug in more deeply. Where I had heard that New York, Arizona and Nebraska had good 529 plans, I was very impressed with what I saw available at Vanguard's plan (which is Nevada's).

Basically the plan has 3 life cycle products available and the largest number of vanguard mutual funds. Many of the mutual funds are low cost index funds, which would fit very nicely into my asset allocation model.

Most interestingly, the fees are advertised as ranging from 0.5 - 0.7%, which is quit a bit less than Illinois' 1% or the Arizona Upromise Plan at close to 1%. When we actually examined the various mutual funds we would consider, we found the costs to be closer to 0.55%, which ends up being 0.01% cheaper for the same funds in New York's 529 plan.

Here is a link to the Vanguard 529 plan.

Here is a link to a very helpful 529 plan comparitor from Vanguard. It takes quite a bit of effort to find it at their site, so keep this posting handy. The comparitor allows you to compare various 529s - it's the best I've seen so far.

Keep in mind that Vanguard's product is particularly compelling if you accept and believe in one or more of the following:
  1. High fund expenses decrease overall long term performance and do not correlate with actual performance over the long term
  2. Very low cost index funds allow the best long term performance vs. actively managed funds (compared to their specific target index)
  3. 529 plan investments should be incorporated into your overall investment strategy and not compartmentalized - this means a 529 plan should offer investments compatible with your investment strategy
  4. Transparency - 529 savings plan holdings should be as transparent as possible to support integration into your overall investment strategy. Ideally they are specific index funds.




Unknown said...

Very good information. I've recently considered shopping 529 plans for both my kids. We are enrolled in the Georgia plan which has a similar life-strategy offering. I'm not too thrilled with the lack of choices, but the fund is managed by TIAA-CREF, a traditional low-expense house.

By the way, I'm enjoying your blog and look forward to future posts. I've added a link here for my blog readers. Keep up the great work!



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