Dollars & Sense - The many varieties of 529 Plans

The problem of how to save for college education expenses can be both easy to solve and confusing to resolve. There are now over 40 different 529 college savings plans. Each plan is sponsored by a specific state and is thus considered to be a municipal security. The design of the various plans offers several options, age-based models, individual mutual funds, investment-tolerance models and target plans. In addition, some 529 plans have the standard mutual fund commission structure with up front charges while others have no up front charges but instead have back end fees for early withdrawals. Others offer a choice of A. B. or C. accounts. Annual management fees are another issue to evaluate when deciding which state’s plan is preferable. For instance, all of the C shares of mutual funds offered by the American Group of funds charge fees of less than 2% while the management fees of the Strong Mutual fund company’s plan are more than 2 ¼%. Even the age based models of the various plans differ as to what percentage of their portfolios are in equities verses bonds and Treasury issues. One specific state has 40% in equities for a specific age based plan where another state has 60% in equities for the same age based plan.

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