Smart Saving for College—Better Buy Degrees
529 Savings Plans: Fees and Expenses
All 529 college savings plans have fees and expenses. Not only do these charges vary among 529 plans, but also they can vary within a single plan. Like mutual funds, a single college savings plan may offer more than one “class” of shares to investors. Often referred to as A, B or C classes, units or fee structures, each class has different fees and expenses. To see if a particular college savings plan offers more than one class, check the offering document.
Higher fees and expenses can make a big difference in the value of your investment over time. Let's say you invest $10,000 in a college savings plan with a return of 8 percent before expenses. With a plan that had annual administration and operating expenses of 2 percent, after 18 years, you would end up with only $27,880. If the college savings plan had expenses of 0.65 percent, you would end up with $35,548. The 0.65 percent option creates 27.5 percent more value than the 2 percent option.
529 Expense Analyzer
Use FINRA’s expense analyzer to compare how sales loads, management fees, underlying fund fees and other plan expenses can impact returns.
Here's a list of some of the most common fees, charges and expenses found in college savings plans:
- Enrollment Fee. Many college savings plans do not charge an enrollment fee. Almost all enrollment fees are under $50.
- Annual Maintenance Fee. Most college savings plans charge annual maintenance fees. These fees usually range from $10 to $50. Many plans reduce or eliminate this fee for residents, if you make automatic contributions, or if you maintain a certain balance, typically $25,000.
- Sales Charge (Front-End Sales Load). Several college savings plans charge a sales charge when you buy certain investment options within a plan or purchase a plan through a broker or investment adviser instead of directly from the state. Generally, you can determine the sales load by looking at the fees and expenses section of the offering circular or prospectus. Not every plan has a sales load. In some plans, a sales charge may only be levied on certain share classes of the plan.
Get a Break on Front-End Sales Loads
Like mutual funds, Class A shares of college savings plans often offer discounts that reduce the front-end sales loads you pay. The investment levels at which the discounts become available are called breakpoints. The amount of the discount is based on the size of your investment, and the discount increases as the size of your investment increases.
- Deferred Sales Charge. A deferred sales charge or contingent deferred sales charge (CDSC) is a charge you pay when you withdraw money from an investment option or college savings plan. It is sometimes referred to as the back-end load. The charge may start out at 2.5 percent for the first year, and get smaller each year after that until it reaches zero. Generally, you can determine the deferred sales charge by looking at the fees and expenses section of the offering circular or prospectus. Not every college savings plan has a deferred sales charge. In some plans, a deferred sales charge may only be levied on certain classes of the plan.
- Administration/Management Fee. This is the total annual college savings plan operating expenses expressed as a percentage of the plan's assets. For example, an expense ratio of 1 percent represents an annual charge to the plan's assets—including your proportional interest in those assets—of 1 percent per year.
- Underlying Fund Expenses. Because college savings plan portfolios typically invest in a number of mutual funds, they bear part of the fees and expenses of these underlying funds. This expense is expressed as a percentage of a mutual fund's assets. The college savings plan’s offering circular or prospectus may contain fund expense percentages for each mutual fund in its portfolios.
Download the print version:
FINRA Investor Podcast, Smart Saving for College—Part 1: 529 Plans
FINRA Investor Podcast, Smart Saving for College—Part 2: Other Tax-Advantaged Options