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529 Plans Add ETF's to Investment Choices

Jul 8, 2012

529 College Savings Plans are the backbone to any preparation to college financing. With the goal of offering parents better returns and more diversification many 529 plans are now going to offer ETFs. 529 plans on average lost about 1% last year, whereas the S&P 500 gained 2%. In contrast, a 529 plans that offer iShares returned 3.3% in 2011 and has returned an average of almost 1% since 2007, compared to the 3% industry loss.

The 529 savings plans are a tax-advantage method for saving toward future college expenses. Investors can establish a college savings fund that pays for a beneficiary’s room, board, mandatory fees, books, computer and tuition. Investments in the savings plan are not subject to federal tax as long as the money is used for college expenses. Currently, mutual funds make up the lion share of the college-savings 529 industry.

There is a growing trend to incorporate ETFs into 529 plans to make them more attractive. Even today Nebraska now includes four ETFs in three of its 529 plans, one of New York’s plans has six ETFs and Nevada’s Upromise 529 is almost exclusively comprised of ETFs, reports Annamaria Andriotis for SmartMoney.

529 plan investment managers are adding ETFs in an attempt to make quick and easy changes to portfolio allocations at a fraction of the cost. ETF products can be traded throughout the trading day while mutual funds can only be reconstituted at the end of the day. Additionally, 529 plans with ETFs have an average expense of 0.61%, compared to the industry average of 1.12%.

Many changes are coming for 529 College Savings Plans, with the addition of ETFs, these plans will look more like an average investors account. It will help performance and attract more savers.

Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.com. Want to be heard? Leave a reader comment below.

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