States tweak fees and other features in competition for investor dollars
College savings plans continue to be popular with investors, and sponsors of the nearly 100 different Section 529 plans offered in the U.S. are tweaking fees and other features to attract assets.
“Plan managers, being smart and savvy as they are, continue to implement strategies that take advantage of market opportunities,” Andrea Feirstein, founder of AKF Consulting Group, said at a virtual conference Wednesday sponsored by the National Association of Personal Financial Advisors and Forbes.
Based on some of the most recent changes, those holding New York's direct-sold plan are among the winners, while North Carolinians are losing an investing incentive.
New York's direct-sold 529 program managed by Vanguard and Upromise Investments changed its program to allow for a change in account ownership. So, for example, if a grandparent were to own an account but no longer wants to oversee it, the account can be transferred to the parent of the future college student. Previously, such a move took a court order.
That New York plan is the second largest in the nation, with $13.6 billion in assets, according to Strategic Insight. The largest plan is Virginia's CollegeAmerica program with $41 billion in assets. It is an adviser-sold plan managed by American Funds.
Other changes instituted by plans:
•North Carolina residents will no longer be able to get a state tax deduction for contributions to the state's direct-sold National College Savings Program, beginning next year.
•The Michigan Education Savings Program recently lowered its administrative fees by 25% and lowered its program management fee. That direct-sold plan is managed by TIAA-CREF Tuition Financing.
•Pennsylvania also reduced fees by 22% last month on its PA 529 Investment Plan.
In evaluating 529s plans, which are named after the Internal Revenue Service code that created them, Ms. Feirstein recommended first considering the state in which the owner of the account lives, because sometimes the additional state tax benefit can make their state plan the best choice.
Montana recently became the sixth state to offer a state income tax deduction for 529 plan investments even if its residents invest in another state's plan, said R. Sheff Faulkner, vice president on iShares 529 team and a panelist on the virtual conference. The other five states are Arizona, Kansas, Maine, Missouri and Pennsylvania.
All the college savings plans grow tax-free. Funds can be withdrawn without paying taxes as long as the money is used for tuition and other college-related expenses.
Overall, Americans have about $191 billion socked away in 529 plans, according to Strategic Insight data released Wednesday. That's up about 17% from a year ago and an increase of 4% from June 2013. About $603 million flowed out of the plans to cover tuition and other college expenses during the quarter that ended Sept. 30, the data show.
Ms. Feirstein said 11 states' adviser-sold plans now offer fee-only advisers a cheaper share class for their 529 plan clients, including Alabama, Arkansas, Colorado, Connecticut, Illinois, New York, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.
Many direct-sold plans also can give financial advisers access to client account information, she said.
