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529 plans, what do you lose with the lowest cost plans?

I'm looking at 529 plans. I'll be indexing and don't get a state tax deduction, so I'm primarily concerned with plan costs. What surprises me is that when rating low cost plans, magazines, books and web sites (ie Kiplinger's,

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don't rate the lowestcosts plans as the best. For instance, why isn't Ohio's Vanguard plan(expenses around .25-.39) better than the Iowa plan or the Nevada plan(with expenses around .5)? I'm come up with four theories:

1) The funds or age brackets - Funds in most Vanguard plans seem similar, but perhaps there is something that I'm missing? Or perhaps the more expensive plans offer more flexibility (more funds or age-based options) that I just wouldn't use?

2) Convenience - it may be more difficult to use the cheaper funds. But from the outside, it doesn't seem that way to me. They all seem to have website-based administration and support EFTs. Maybe the cheaper ones don't have good phone support?

3) State negotiations - some states just don't take as much in fees, or did a better job in negotiating a 529 contract?

4) The solvency of the state - This is the most troubling to me. We know that investors don't directly own shares in a fund, instead they own part of the trust that gives a return based on the choice of investments. Is there a chance that a financially troubled state could decide to go into default on loans, then go into receivership and have the 529 trust fund liquidated? Given the risk, these states would need lower costs to attract investors.

Reply to
johnrichardson_us
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It's all in the breakout. Some of the plans give a single final number while others break out 529 expenses and mutual fund expenses. From what I can see, OH, IA, UT and NY all do 0.55% total for Vanguard index funds. The choices for OH/UT/NY look pretty much the same to me.

The sav> I'm looking at 529 plans. I'll be indexing and don't get a state tax

Reply to
wyu

I might be missing something. I was looking at the OH prospectus last night, it indicated that the "aggressive" package of Vanguard funds has a .39% fee total. .25% total if only the S&P500 Vanguard fund is used. (As you said, most other similar 529s are around .55% for the same funds, with Nevada at .50% - Vanguard lowered it recently.)

Unless I'm reading the prospectus incorrectly, I'm wondering why there could be a .10+ basis point discrepancy between very similar choices. What's the problem with Ohio? :)

NH (and MA too?) are also at .50% for Fidelity index funds.

Reply to
johnrichardson_us

Ok, my numbers are wrong. I was looking at the SavingForCollege 529 plan fee of 0.20% for S&P500 / 0.30% for all other Vanguard index funds. I then looked at my taxable Vanguard funds average ER and added

0.30% to it to come to a number of roughly 0.55%. However, I forgot about Admiral shares which have average ERs of 0.10%. Add OH 529 plan fee to investor class ERs and you roughly get 2005's fees. Add OH 529 plan fee to admiral class ERs and you roughly get the current fees.

So yes, 0.39% is the fee total and is definitely better than the 2nd lowest fee plans at 0.50 to 0.55%. I myself opened the OH plan early this year before Fidelity took over management of CA's plan. Nothing important seem to be missing. When I had a question, fired off an email and got a response the next day. Why people don't recommend the OH plan, shrug ... I don't know.

On this note, I was planning to rollover to CA's plan to avoid paying CA income tax on gains in OH's plan -- however, I've been reading up on info that says out-of-state 529s may also be CA income tax deferred. I will have to read up on it more before I decide what to do.

snipped-for-privacy@talisys.com wrote:

Reply to
wyu

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