Common 529 plan fees to watch out for

A 529 plan is a tax-advantaged savings account designed to help families save for future education costs. While a 529 plan can be a lucrative investment vehicle, it can come with some fees.

As you explore 529 plans, look for which charges the highest or the most fees. While they’re not the only factor you should consider, fees can help you determine which 529 plan is the best for your children.

529 plan fees

All 529 plans charge fees, but those fees can vary depending on which state offers the plan, whether the plan is advisor-sold or direct-sold, whether the state offers a tax deduction, what the plan offers and more. 

A few of the most common fees are:

• Account maintenance fee: An account maintenance fee is rare — and many plans will waive it if you meet certain criteria. If you are charged an account maintenance fee, it will be either a monthly or quarterly fee represented as a fixed dollar amount or a small percentage of the assets in your plan. This fee usually totals less than $50.
• Annual maintenance fee: An annual maintenance fee is a yearly charge for having an account. Many plans don’t charge an annual maintenance fee, but those that do typically charge $10 to $50.
• Enrollment fee: An enrollment or application fee is a charge for enrolling in the 529 plan you’ve chosen. Not all plans charge this; for those that do, expect to pay around $50.
• Expense ratios: Almost all 529 plans charge annual fees based on a small percentage of your assets under management. For instance, $100,000 invested in a 529 plan with a 0.2 percent expense ratio will be charged $200 in fees each year. Plans opened through a brokerage or a licensed financial advisor (advisor-sold plans) tend to have higher expense ratios than plans opened directly by the investor (direct-sold plans).
• Sales charges: If you invest in a plan with a broker, your broker could take a commission totaling a percentage of your investment — sometimes around 5 percent.
• Administration/management fee: Some 529 plans may also charge what’s known as an administration or management fee. This fee, which is a percentage of the plan’s account balance, may amount to less than 0.10% or up to 0.70%. 

How to find a 529 plan with low fees

Although all 529 plans charge fees, here are a few steps you can take to choose a plan with low fees:

1. Research and compare 529 plans

Each 529 plan is constructed differently, and often it’s hard to tell how much you’ll pay in fees over time. To compare numbers, visit the websites of a few 529 plans you’re considering; these sites should estimate what you’ll pay in fees. You can also use a 529 comparison search and comparison website like the College Savings Plan Network.

In general, direct-sold plans have lower fees than advisor-sold plans since an advisor-sold plan offers more personal guidance for your specific needs. If you choose a direct-sold plan, your expense ratio could be a few percentage points lower than with an advisor-sold plan.

2. Look into 529 plans by state

You may also be able to avoid fees if you choose a plan from your state. For instance, many plans waive account maintenance fees for residents of the state that sponsors the plan.

Another potential benefit of selecting a 529 plan in your state is that some states match plan contributions up to a certain percentage or amount.

Bottom line

While picking a 529 plan for your child, pay special attention to common plan fees, such as account maintenance fees, expense ratios, sales charges and other fees that can eat into potential investment returns. You can research your options by visiting individual 529 plan websites or using a 529 comparison site.

Before you open a 529 plan, look at its track record of investment performance, its unique benefits and what additional tax deductions are available.