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Saving for College is Getting Cheaper

Print Posted by Cheryl Costa December 9, 2009 07:12 PM

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Section 529 College Savings Plans are a very popular way for parents to save for college. Money that you contribute to a 529 grows tax deferred and, if you withdraw money to pay for qualified higher education expenses, the withdrawal is tax free. In addition, in many states (Massachusetts is NOT one of them), you can get a tax deduction for your contribution.

So, what's not to love about 529s? Generally, the expenses. Every direct-sold plan has the expenses of the underlying funds that you invest in AND program management fees. In the past, some of these program management fees have been quite high. Earlier this month, Fidelity Investments (which runs the plan in Massachusetts) announced that they would be lowering the fees that it charges to manage its plans. Index portfolio program management fees will drop by a half and the program management fees for actively managed funds will drop by a third.

The move by Fidelity is part of a trend by many plan sponsors and it is good news for those of us saving for college -- the lower the fees you pay, the more money you will have when it comes time to write those tuition checks.

To learn more about 529 plans in general and the fees and performance of specific plans, visit this website.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.