Saving for College: Addressing a Significant Financial Challenge (Second of a Three Part Series)

In the first part of this series, we gave an overview of 529 plans and the due diligence that investors should perform before choosing one

College Saving
Part One
 |
 Part TwoPart ThreeCollege Saving Analyzer

In the first part of this series, we gave an overview of 529 plans and the due diligence that investors should perform before choosing one of them. Two 529 plans that we find particularly attractive are West Virginia’s Smart529 Select savings program that features age-based and static portfolio options utilizing mutual funds from Dimensional Fund Advisors (DFA) and the Utah Educational Savings Plan that offers funds from both Vanguard and DFA. If you are not a resident of a state with a 529 plan that offers a tax-deduction or credit to in-state investors, then the West Virginia or Utah plans may be a good choice for you. See Part I for a list of these states, but note that five of the states allow you to have a 529 plan in any state and take the state tax deduction-- Kansas, Pennsylvania, Arizona, Missouri, and Maine. The decision tree below summarizes the process for choosing a 529 plan.

Please note that if your student has already decided on a particular state school, then you should definitely consider that state’s prepaid tuition plan.

One important investment decision associated with 529 plans is whether to go with static or age-based portfolios. The Utah Educational Savings Plan and The West Virginia Smart529Select plan offer both. See a brochure on the Smart Select Program here. Note that for the Utah plan, the DFA funds can only be used in a custom portfolio, as the age-based and pre-set static portfolios use only the Vanguard funds. The age-based portfolios give us an appropriate asset allocation for a child of a given age, and they show us how the allocation should change through time (the glide path). As the bar charts below show, the glide path for college savings is far steeper than the more traditional glide path of shifting 1% per year from equity to fixed income. This is reasonable given that the maximum duration of education savings is 22 to 26 years (birth to graduation) while other savings may endure from entry into the workforce until death, a period on the order of 50 to 70 years. 

Both the Utah and the West Viriginia plan allow online access for clients, and their Websites appear to be user-friendly. Performance reports are delivered to clients on a quarterly basis, and they have the option of receiving paper copies or on-line only. Utah's administrative fees are about 0.20 to 0.25% lower, depending on the investment option chosen, but West Virginia's pre-set portfolios have a stronger small cap and value tilt, which may compensate for the higher expense.

When deciding how much to contribute to a 529 plan or checking to see if the plan is on track, it is helpful to utilize a college savings calculator. This calculator, as well as a wealth of other useful information (including a comparison of all the different college savings vehicles) may be found on savingforcollege.com. Please be aware that this Website is geared to sell you premium content. We have identified three not-for-profit Websites that offer valuable information about choosing, applying, and saving for college.

1) collegesavings.org  (This site is geared specifically to 529 plans.)

2) bestcolleges.com (Their Saving for College Resources page provides an excellent summary of different savings options.)

3) affordablecollegesonline.org (This site is geared to finding on-line options for earning a degree.)

In the third and final installment of this series, we will take a look at IFA’s glide path for college savings and review the different types of accounts that IFA can directly manage for the purpose of college savings.

Call IFA at 888-643-3133 for assistance in setting up a 529 Plan.


Part One
 |
 Part TwoPart ThreeCollege Saving Analyzer

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