Here's some good news for those of you (like me) saving for college from Money Central:
Once-exorbitant fees on 529 plans are dropping to the levels of conventional mutual funds, making the plans an even better way to save for college.
The details:
Every state has a 529 college-savings program that allows you to invest tax-free. But the costs in many of these programs used to be so high that they weren't worth the trouble.
That's changed in recent years. Competition has driven down fees -- hands down the most important factor when choosing a plan -- to the point that some plans are cheaper than conventional mutual funds.
Consider the benefit of shaving your costs by 1%: Over 18 years, a return of 7% on an investment of $100,000 is $338,056 -- some 18.4% more than the $285,480 a 6% return delivers.
Yep, low costs make for better investment returns.
Unfortunately, as is often the case in financial matters, what's good news in one area is bad news in another:
If there’s a downside to the boom in 529 plans -- they held $82.49 billion at the end of last year -- it could be that so many people are participating that colleges will have no incentive to rein in their absurdly high costs.
I'm working through our college costs currently -- estimating what we'll need and how we should save it. 529s are certainly on our radar screens and it's likely we'll jump into one before the end of the year.
For more college-related posts, see these links:
Comments