529 Plan Selection for My Second Daughter

Friday, August 21, 2009 |

It has been a few weeks that I have been researching 529 plans for my second daughter. Of course I have not been doing the research everyday. I have been quite busy lately to do it faster than I have planned. Anyway, if you want to look back at all the plans that I have reviewed so far, click here.

So far, I have looked into more detail the following 529 plans:

  • Illinois Bright Start
  • Ohio CollegeAdvantage
  • Nebraska College Savings Plan
  • Nevada Vanguard 529 College Savings Plan
  • West Virginia Smart529Select
  • Pennsylvania 529 College Savings Investment Plan

Of course there are more good 529 plans, but I am sort of limiting myself to 529 plans that offer Vanguard Funds, with the exception of DFA (Dimensional Fund Advisors) offered by West Virginia Smart 529 Select plan. If you have not heard about DFA and why I like DFA, check out this article The Best Mutual Funds: DFA or Vanguard? from FundAdvice.com.

I mentioned after the review of PA 529 Plans that my top three after the review I have done are:
  • West Virginia Smart 529 Select
  • Pennsylvania 529 College Savings Investment Plan
  • Illinois Bright Start
I was contemplating of sticking to Pennsylvania 529 plan to keep it simple since I will be able to maintain only one account for both of my daughters 529 plans. But when compared to Illinois Bright Start, I really like the low expense ratios, even with $10 annual maintenance fees. My plan is to put in $500 initially and then add $100/month. After a year, the account balance should be around $1600 and the $10 annual maintenance fee charged by Illinois Bright Start will be around 0.625%. That would bring the first year expense ratios for Illinois Bright Start to be around 0.85% for me. This would be higher when compared to Pennsylvania plan.

Now, after two years, the account value should be around $2,800 (I am simply ignoring changes since I can't predict the market). The $10 annual fee make the total expense ratios for Illinois Bright Start to be around 0.58% (about 0.36% from annual fee plus around 0.22% for funds expense ratios). So after the second year, considering the expense ratios for both Pennsylvania and Illinois 529 plans do not change, Illinois Bright Start offers a better expense ratios.

However, I kept being tempted by DFA Funds offer from West Virginia. This is a great way to invest in DFA funds. Otherwise, to invest in DFA funds, I would need to go through advisors or brokers, which will charge around 1% annual fees in addition to fund expenses. The expense ratios for West Virginia Smart 529 Select is LOWER than Pennsylvania 529 plans! So I decided to cross out Pennsylvania 529 Plan after the comparison against Illinois Bright Start and West Virginia Smart 529 Select plans.

I was left to choose between Illinois Bright Start and West Virginia Smart 529 Select. So yesterday, I decided to take the plunge and open the account at West Virginia Smart 529 Select. I decided that the extra fees in the long run for West Virginia Smart 529 Select is worth it. So I went with my plan and put $500 in the initial investment.

Again, remember that I am not a financial professional and each person has different circumstances. But I think everyone should do some kind of research toward options available before deciding on the 529 plans. Don't simply go with your state 529 plans. In most cases, your state 529 plans may be the best option if you consider the tax benefit, since a lot of states offer state tax benefits only if you go with your own state 529 plans. But still, you want to look at the funds, expense ratios and other factors. I hope my learning helps other do the same thing.


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