529 Option: West Virginia Smart529Select

Friday, August 7, 2009 |

Update: I have selected West Virginia Smart 529 Select with DFA Funds. For the conclusion of my 529 series, go to 529 Plan Selection for My Second Daughter

I am continuing on my 529 series. Today I will look at WV Smart529Select. Remember that I am looking at this as a potential investor with PA residency, where I can get tax break no matter which state 529 plan I opt with. For my view on other plans, click here.

West Virginia Smart529Select has been the one that I am really interested in and thinking of choosing before I decided that I really need to look at other options. It will always get extra point for me simply because of DFA Funds available, which is usually only available through brokers or financial advisers. Important note before I continue, West Virginia offers several 529 plan, including one called Smart529! The one that I think offer the better choice for most people is the Smart529Select plan. Thus if you are interested on it, please make sure you go to the right web site.

I have provided some details about this plan on my first post on the series. As I have mentioned earlier, you can invest in DFA Funds through WV Smart529Select. DFA Funds is passively managed, similar to Vanguard Index funds. However, DFA does not necessary follow index such as S&P. It has its own indexing strategy that let it managed its funds more efficiently. One such example, if S&P changes the companies in its index, Vanguard S&P 500 would then sells those stocks and buy new stocks. Those transactions mean transaction fees, such trade commissions. With DFA, it doesn't have to sell it right away if not necessary, since it does not follow specific index. That is just a simple example (as I understand it. Reminder, I am not a financial guru, just a simple IT professional that loves the topic of personal finance). One thing that I need to make clear, DFA funds could be riskier due to its higher weighting toward small cap and value. That is actually one reason I like Smart529Select. It allows me to take more risk with the investment.

For those that is more risk averse, unfortunately WV Smart529Select only has one track for age-based option, which is pretty much the aggresive track, while other states, such as PA nowU 529 Direct Investment plan offers three age-based options, aggresive, moderate and conservative options.

Here are the key considerations:
  • Age-based options only offers aggresive track, which is actually even riskier that other states aggresive options due to higher weighting toward value and small cap.
  • The total expense ratios ranges from 0.65% - 0.77%. While it is not the cheapest, considering in many cases, to get access to DFA, you will have to pay 1% fees for advisors, I consider this low expense ratios.
  • There is $25 annual fees, which you can avoid if you meet certain requirement. If you are West Virginia resident, there is no annual fees. If not, one easy way is to enroll in automatic investment program for $50 or more/month. I am planning to put in $100/month, so this is not a problem for me. You can also avoid annual fees if you have $25,000 account balance. It is hard to reach that point right away. Also remember that if your state offer state income deduction, in many cases, you will have $13,000 limit per beneficiary/year, however, you can gift up to 5 years limit in advance, as long as you do not add anymore additional funds for the next 5 years.
This option was my top choice before I start doing my research. After my research so far, it is still my top choice, but the Illinois Bright Start option is not far behind. I won't be surprised if I decided to go with Illinois Bright Start instead of this one.


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