Comments on: 529 Plans: Age-Based Options Don’t Make Sense

By: Mike

Mike — Fri, 09 Sep 2011 15:50:52 +0000

If you don’t like the typical age based allocation of 529 plans but want the simplicity of the shifting allocation and low expenses, folks may be interested in a recent change to Utah’s 529 plan. In addition to lowering the asset fee from 0.22% to 0.20% (which is in addition to fund fees – but those funds are institutional Vanguard funds like total stock market at .02% ER.. so overall it is still cheap) they now offer the ability to create your own age based plan and it will automatically adjust at the age brackets. Take a look at possible options and the fee calculator : http://www.uesp.org/Investment-Info/Customized-Age-Based-Fee-Calculator.aspx

By: cd

cd — Sun, 04 Sep 2011 22:13:25 +0000

@tfb – thx for the info! truly appreciate it!

By: TFB

TFB — Sun, 04 Sep 2011 21:11:59 +0000

@cd – Yes I think at age 14, the age-based allocation in USAA’s Nevada 529 plan is too risky. It invests 47% in stocks when the money is needed in 4-7 years. The Preservation of Capital looks better if you must stay in that plan. Otherwise you may want to consider a plan that offers CDs or fixed income options, for example Ohio (FDIC-insured CDs) or Michigan (TIAA-CREF Principal Plus Interest).

By: cd

cd — Sun, 04 Sep 2011 17:42:10 +0000

hi guys –

i have 529 nevada through usaa/ age based , my kids are now 14 yo , with the volatility of the market, im scared there wont be money left there in 4 years? should i change it to preservation of capital? please please feedbacks!

By: TFB

TFB — Wed, 13 Oct 2010 18:54:15 +0000

AK – I decided to start off with 45% in stocks, 55% in bonds at age zero. That’s close to the moderate option you mentioned, but it’s for a child at birth. Every year thereafter I will reduce the % in stocks by 3 percentage points: 30% in stocks at age 5, 15% in stocks at age 10, 0% in stocks at age 15. When the child is 15 I will switch to CDs.

By: Zak

Zak — Wed, 13 Oct 2010 17:04:02 +0000

@AK

When the market gets better?The DOW is above 11,000 this week, so I don’t know what your definition of “getting better” is. Right now we are probably either at a peak before another swing down or finally starting the long (and probably quite volatile) track back up the mountain, but I don’t think many people could predict which.

What I am saying here is to stick to your fundamental risk tolerance. If you have a low tolerance for risk, stick with the conservative growth fund. My guess is that with kids under the age of 5, the “typical investor” in your situation would sway more towards moderate growth, but at the same time you shouldn’t necessarily follow the typical investor. If market volatility keeps you up at night, just go for the conservative option.

One last point on the Wellington option. First, don’t jump over dollars for dimes. One of the main concepts that are pushed on personal finance sights is that higher fee funds are bad. That’s a total pile of BS. Funds report performance net of fees… they are required to by law. So, all other variable being equal, if one fund has a higher 10 year performance record (with higher fees) than another fund (with lower fees), why would you even consider the second fund?

Anyways, second point on the Wellington fund. That is a straight up growth fund, with only 30-40% of its assets invested in fixed income securities. It also has 1, 3, and 5 year betas that are higher than 1, which means that in almost every time period (except for the 10 year time frame) it has had HIGHER volatility than the S&P 500. So basically, it has produced pretty great returns, but at a trade off for slightly higher volatility than the S&P. So, not really the best fit from a risk standpoint if you are hesitant to even go for a moderate growth fund. The moderate growth fund is more conservative than Wellington.

By: AK

AK — Wed, 13 Oct 2010 16:48:38 +0000

I ive in OH and will be investing in the College Advantage Plan. I have three children under the age of 5. I was thinking the age-based plan was too risky. My intuition tells me to go with the Vanguard Conservative Growth Fund (Balanced Options – mix of stocks and bonds) and when the market gets a little better switch to Vanguard Moderate Growth Fund still Balanced Option. I noticed the Vanguard Wellington Option looked good as well but has a higher fee. Is the balanced approach better and is conservative to conservative?

By: TFB

TFB — Sat, 07 Aug 2010 06:39:38 +0000

B – Utah’s 529 plan is also a good one. In terms of age-based investment options though, some in the Utah plan are even more aggressive than the ones in the Ohio plan.

By: B

Fri, 06 Aug 2010 21:03:06 +0000

What are your thoughts on Utah’s 529? I read an article that compared Utah’s to Ohio’s. She has a good chart comparing the investment timelines of both.

By: TFB

TFB — Fri, 16 Apr 2010 18:55:22 +0000

Steve – It’s not too late, especially if you get a state tax deduction from contributing to a 529 plan. Just make sure you select a safer investment option. For example the Ohio CollegeAdvantage 529 plan I mentioned in this post offers FDIC insured CDs.