529 Plan Basics – Part IV of V (Avoiding Fees)

Welcome to Your Money.  On today’s podcast, I’ll continue discussing 529 plan fees.  A frequent question I hear from potential 529 plan investors is this:  How can I avoid paying too much in fees? 

With the increases for tuition at many colleges and universities over the past few years, that’s a very good question.  Here are a few ways that you can invest in a 529 plan, but reduce or avoid some fees and expenses.

• Invest in a Direct-Sold Plan. Most states offer a college savings plan through which residents and, in many cases, non-residents can invest without paying a "load," or sales fee. This type of plan, which you can buy directly from the plan's sponsor or program manager without the assistance of a broker, is generally less expensive because it waives or does not charge sales fees that may apply to broker-sold plans.

• Consider Your Home State's Plan. If you are a resident of a state sponsoring the 529 plan, you may pay lower fees than non-residents. In addition, you may receive state tax benefits for investing in your home state's plan.

• Make Regular Contributions. Some college savings plans will waive or reduce some of your fees if you participate in an automatic contribution plan.

• Get a Breakpoint Discount. If you purchase a broker-sold college savings plan, you may be able to reduce the sales fee you'll pay if you invest or plan to invest above certain threshold amounts. These "breakpoint discounts" only apply to Class A shares, which charge an up-front sales fee when you invest in your plan. Even if you qualify for a breakpoint discount, you'll likely pay lower fees and expenses by investing in a direct-sold plan.

In our next and last episode in this series on 529 plans, I’ll discuss financial aid. 

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