My Experience with New York’s 529 College Savings Program
A 529 plan is an account in which you can save for future education-related expenses. Think tuition, room-and-board, books, etc. It’s an improvement over a typical brokerage account in that it offers some tax advantages. Post-tax money goes into the account, grows tax-free, and can then be taken out tax-free as long as it is used for approved expenses. Up until recently, it was basically a way to save for college. Now, however, you can use the funds to pay for private high school and grade school. You can open a 529 account for yourself, your kid, your friend—basically anyone.
The accounts are offered on a state level, so when choosing the best one for you, it is important to note that some states offer tax deductions or credits for contributions made to a 529 account. Kentucky is not one of those states, so I opted to look elsewhere. A simple Google search will bring up all the information you ever cared to know about the dozens of 529 plans out there, but I decided to hone in on a handful of recommendations made by friends and the White Coat Investor. After only ten minutes or so of digging, I realized that the plan offered by New York was the best fit for me.
Why? 3 reasons.
#1. Options, options, options
New York’s plan offers three age-based options: conservative, moderate, and aggressive. Age-based options are the 529 equivalents of target date funds; as the beneficiary approaches the age of enrollment, the investment mix automatically becomes less aggressive. It’s like putting your college savings plan on autopilot. For those who would prefer to create their own custom asset allocation, New York's plan offers 13 individual portfolios for you to do so. (I chose the autopilot route.)
#2. A familiar investing name
A quick scroll through the plan’s investment options reveals a familiar name: Vanguard. The reason? Vanguard serves as the investment manager for New York's 529 plan. My wife and I already direct much of our retirement savings to Vanguard funds and we feel comfortable with them. Why not entrust them with our child’s education nest egg?
#3. Low costs
The investment horizon for a 529 account could be 20 years or more. For that reason, it is smart to find a plan that offers low fees. Enter the New York 529 plan with its minuscule annual fee of 0.13%. This basically translates to an expense ratio of 0.13, which I would consider great in the investment world. (For comparison, the lowest expense ratio of the target date funds offered by my employer is 0.54.) In fact, when comparing the high cost options of the various 529 plans in the U.S., one fee study showed that the New York plan ranked #1 in terms of low costs.
Summary: New York’s plan offers excellent investment options with a trusted investment manager while keeping fees low. Win, win, win. Check out the plan highlights here.