529 Basics – Part III of V (Fees)

Welcome back to Your Money.  Today’s podcast on 529 plan fees is our third in our series of five on these popular college savings vehicles.

Fees are an important consideration for any investment and 529 plans are no different.

Consider this example.  Let’s say you want to invest $10,000 in one of two college savings plans.  And other than their fees, assume that the plans are very similar.  Plan 1 has ongoing expenses of 1.5% per year.  Plan 2 – just .5% per year. 

Assuming a 5% rate of return, Plan 1 will have a value of $18, 334 after 18 years.  But Plan 2 – with its lower expenses – will have a value of $21,989.  That’s a difference of over $3,600. 

Clearly then, fees matter.  But don’t take my word for it.  Run some numbers yourself.  I did this calculation on the NASD’s website – nasd.com.  On that site, look for the 529 plan expense analyzer. 

Another good resource for assessing the impact of fees over time is hypothetical $10,000 investment cost chart, which you can in the fee section a plan’s disclosure document.  That can really show you the impact of fees over time on an investment. 

I’ll continue on this topic of 529 plan fees next time. 

Thanks for listening.  Your Money is brought to you by the U.S. Securities and Exchange Commission.  Do you have a comment on this episode or an idea for a future one?  Send an email to podcast@sec.gov.