Investing for 529 College Saving Plan - Initial Stage

Tuesday, July 14, 2009 |

I have two daughters, one is currently 2.5 years old and the other is less than 1 month old. For the older daughter, we have 529 plan in my state (PA) 529 Invesment plan, managed by uPromise with Vanguard funds. The expense ratio on those is relatively higher compared to other 529 plan, but there is advantage of using PA plan in the future for financial aid purposes, if needed.

But since PA is one of the few states that give tax deduction for investment in other state 529 plan, for the younger daughter, I want to do more research in the 529 selection. I have several options, but I will share my process online.

  • Pennsylvania Direct Investment - nowU Pennsylvania 529 Investment Plan. If I choose this one, I will be able to manage both daughters 529 plan in one account, thus simplifying my financial management. And if I choose this, I will probably go with Age-based Aggressive Option, which for 5 years or younger, the fund will be Aggressive Growth Portfolio. This portfolio invest in 85% Vanguard Total Stock Market Index Fund and 15% Vanguard Total International Stock Fund, with combined expense ratio around 0.70%. While I think those two funds are good, I don't like its assets allocation. I would prefer more international and more learning toward small cap value fund. Thus the reason I am also interested in the next option.
  • West Virginia - Smart529Select. There are several reasons I like this option, but the main reason would be the access to Dimensional Fund Advisors (DFA), which is usually available through Financial advisors only., one of my favorite financial websites, thinks that DFA is better than Vanguard. The expense ratio is relatively low too. If I go with Age-Based Portfolio, for child age 0-3, the portfolio consists of DFA Emerging Market Fund (5%), DFA International Core (20%) and DFA US Core Equity 2 (75%) with total expense ratio around 0.76%. I really like the higher allocation toward International equity and also the addition of Emerging Market when compared to Pennsylvania's nowU 529.
  • I will also research in more details the options from Illinois, Ohio, Nebraska, Nevada and others that several websites listed in their top 5. As I mentioned earlier, Pennsylvania tax payer can deduct money invested in other states 529 plan, up to $13,000/year/beneficiary (or $26,000 for joint filler).
I know a lot of other personal finance blogger have detailed their research into 529 plan, but may be there is something you can learn from me or if you happen to be a reader living in the Commonwealth of Pennsylvania, it may relate better to you.

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


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