Comments on: 529 Plans: Fees More Important than Deductions

By: jim

jim — Wed, 23 Jul 2008 17:03:44 +0000

Yeah it definitely does, at first I was discounting the value of the tax deduction but it appears as though that’s really the kicker. If you’re an MD resident, the MD plan may be better as long as you’re going strictly with the cheapest (expense ratio wise) index funds. The fund expense ratio differences at more active funds is significantly larger.

Oh, and to make it even closer, I had enough error, it turns out Nevada waives the $20 account fee if you have over $3000 in assets.

By: Monkey Monk

Monkey Monk — Wed, 23 Jul 2008 16:11:40 +0000

Ok . . . that gets the two plans closer but isn’t the MD plan still cheaper when you look at the combined management and fund fees (.28% + .35% = .63% vs .65%)?

Once you add in the other sizable tax advantages of being a MD resident in addition to a waived annual fee the Maryland plan still clearly looks like the better choice.

By: jim

jim — Wed, 23 Jul 2008 15:58:28 +0000

Money Monk: The management fee in Maryland doesn’t include the underlying fees, the figure for Nevada does (I couldn’t find the Nevada fees broken out), so it’s really not an apples to apples comparison in that case. I should’ve made it clearer.

By: Monkey Monk

Monkey Monk — Wed, 23 Jul 2008 15:42:29 +0000

I’m not sure I’m completely following your thought process here. The Maryland Plan as you’ve described appears to have three major advantages over the Nevada plan:

1) It should be fairly easy to get the $25 annual fee waived for Maryland. I cannot be waived in Nevada since your friend is not a resident.

2) The annual management fee for Maryland is considerably cheaper (.37%) than Nevada.

3) They’ll get a $2500 tax break from Maryland (as you say, equal to about $150)

The only advantage I can see to the Nevada plan is the cheaper fees of the Vanguard funds but don’t see how that comes close to offsetting the advantages of the Maryland plan. The difference in the cheaper funds doesn’t even offset the higher NV management fees, not to mention the potential of an additional $175 savings using the MD plan.

Am I interpreting this incorrectly?

By: CK

CK — Wed, 23 Jul 2008 14:14:01 +0000

I’m actually looking into opening a 529 for my son. Our state has a deduction for the contribution, a matching program (basically $200 free dollars) which we just squeak under the income wire for, and low cost TIAA-CREF funds.