This guest article is by Marin mom and financial planner Tanya Steinhofer, CFA, CFP®.
I recently conducted some research on 529 plans while deciding which plan to open for my daughter. I had chosen Utah’s 529 plan a few years back for my son, but wanted to make sure it was still one of the best choices given the market challenges of the past couple of years. Several states’ plans struggled during the financial crisis due to too-aggressive asset allocations or poor performance of some of the investment options. In fact, one of the age-based options in my son’s Utah plan suffered because it keeps 65% of a college-enrolled student’s assets in stocks, which is aggressive given the short time horizon of those savings, particularly in a bear market. Fortunately, the age-based option I chose for him is all in cash by the time of college enrollment.
My criteria for choosing a plan are low fees, good selection of investment options (particularly age-based options using index funds) and sensible asset allocation. My rationale for these criteria is as follows:
Low fees. Research shows that low fund expenses are one of the highest predictors of superior long-term performance. As one of the few things you can control, why pay more in fees in the hopes that you’ll outperform the market? The three states with the lowest all-in fees are New York, Utah and Nevada.