Section 3: Investment Options and Fees

As previously discussed, plans typically offer prepackaged portfolios in 529 plans. Options may include age-based portfolios, risk-based, or interest-only products. Some plans may only offer one or two choices while other may provide 10 or more. When choosing a 529 plan, consider the following plan features as it relates to the asset management portion of the program:

  • Investment options

  • Investment expenses

  • Plan fees and expenses

  • Investment performance

  • Selection of underlying investments

Investment options

Choices commonly include:

  • Age-based options: Plans may provide age-based investment options. As the name implies, the portfolio will be comprised of various underlying funds (usually mutual funds) corresponding to the beneficiary’s age and are designed to become more conservative as the beneficiary gets older.

  • Risk-based options: Plans may offer investment choices based on your risk tolerance as a stand-alone option or as another option within the age-based portfolio.

  • Static investment options: Pre-constructed portfolios may also be available in 529 plans. Static investment options may be based on risk tolerance and can also include Money Market investments. Plans may offer multi-fund or single fund portfolios. The number of choices will vary considerably among plans.

  • CDs and other interest-bearing investments: A small number of plans only offer CDs and other investments that may have a fixed interest rate or a minimum interest rate. In today’s low interest rate environment, returns may be insufficient for many investors.

Investment expenses 

Expenses on the underlying investments will vary between plans but also within the same plan. For example, if a plan offered both active and passive investments, the actively managed portfolio would carry somewhat higher fees than the passive option. Fees may also depend on the program manager and the fund family selected in the underlying investments. For example, if Fidelity Investments or TIAA-CREF is the program manager of a 529 plan and their funds are offered in addition to other firms’ funds as the underlying investments, it is common for the program manager to discount their own products. Fees are an important consideration when selecting a plan or a portfolio, but they shouldn’t drive the decision-making alone as there are other important factors to consider as well.

Plan fees and expenses 

In addition to the expenses on the underlying investments, some plans may charge an enrollment or application fee, an annual account maintenance fee, and/or a program management fee. Fees may be in dollars or assessed as a percentage of net assets. An easier way to compare plans by looking at the total asset-based expense ratio. has a comparison tool that can help in this process.

Investment performance

As part of the comparison process, review the historical performance on your short list of plans. In today’s low interest-rate environment, CDs and Money Market funds may not provide the desired returns. Always keep your time horizon and risk tolerance in mind when evaluating performance metrics as it’s important to align your investment objective with your expectations.

Selection of underlying investments

Certain plans will allow investors to choose between a number of different fund families while others will not. As with the other factors listed here, the availability of choice should be a component of your decision but perhaps not a deciding factor.

Next…Section 4: Strategies to Save for College

Or Go Back to Section 2: Understanding 529 Plans: Key Terminology

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