Setting Up Another 529 Plan

Ohio CollegeAdvantage 529 Plan $25 Referral BonusOur second daughter is more than 4 months old already, yet I waited till yesterday to set up an 529 plan account for her. I wasn’t really waiting for anything. It has been on my mind since she was born, but I kept delaying it with no good excuses. If I didn’t read Lazy Man’s post on 529 plan over the weekend, the delay could be even longer. When our first daughter was born in 2005, I opened an account for her within the first month though.

The 529 plan I got for our first daughter was the UPromise College Fund which is tied to my Citi UPromise credit card. Though the fund is also managed Vanguard, its expense ratio (ER) is rather high (0.65% for aggressive growth portfolio) and it charges $20 annual account maintenance fee. For this plan, what I like is, through UPromise, it automatically invests rewards earned form the credit card in the fund. The $20 fee, however, is really annoying. So this time I want to get a different plan for our second daughter. And since New Jersey doesn’t offer any tax incentives for using the in-state plan, I am free to choose any plan I want, based mainly on the plan’s expenses and manager.

There were a couple of plans that I identified last year when researching for college savings plans for our first daughter, namely College Savings Iowa 529 Plan and Utah Educational Savings Plan. However, the Iowa plan charges 0.62% ER plus a $25 account maintenance fee, while the Utah plan has a lower ER (0.25% to 0.39%) , it also requires $25 annual fee that I want to avoid. Eventually, I followed Lazy Man’s suit and decided to go with Ohio CollegeAdvantage 529 Savings Plan for its lower fees (0.32% to 0.37% ER, no annual account maintenance fee). The Ohio plan is also managed by Vanguard.

The account opening process was quite simple, taking about 10 minutes to complete:

  1. Account owner’s information, including name, DOB, SSN, driver license, and mailing address;
  2. Email address and account user name and password;
  3. Verification of email address;
  4. Beneficiary information, including name, DOB and SSN;
  5. Initial contribution selection, including amount, investment choice, and bank information;
  6. Automatic contribution plan set up;
  7. Successor owner information, in case, you know…

I made an initial investment of $1,200 just to make up the four months I missed and set up an automatic monthly contribution of $300, the same amount as we set aside each month for her sister. If the market can return an average between 8 to 10%, by the time they reach college age, they should each have between $14,000 and $180,000 in their college savings account if we can maintain the monthly contribution for the next 18 years. My parents supported my college education. So I feel I have the obligation to support my children as well, as long as I have the ability to do so. If they can find a job to pay part of the tuition, that’s great; if not, I want to be able to pay for the school at their choices, though $180,000 may not be enough at that time. This support, however, doesn’t come at the expenses of our own retirement savings. We both contribute close to the limit to our 401(k)s and maxed out our Roth IRA accounts every year.

The investment choice I made was Vanguard Aggressive Growth Index Portfolio, which has 85% in Vanguard Total Stock Market Index Fund and 15% in Vanguard Institutional Developed Market Index Fund. They also have aged-based aggressive portfolio, however the allocation shifts from 100% stocks to 65% equities 35% bonds when the age reaches only 6. That’s a little too fast in becoming conservative. With a 100% in equities allocation, I hope the money can grow a little faster. When our daughters get close to college age, I will do the adjustment myself to preserve the money.

Update: Open an account before December 31, 2009 and get $50 bonus.

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8 Responses to “Setting Up Another 529 Plan”

  1. Lazy Man and Money |  Jul 30, 2007 at 11:07 am

    Thanks for the shout out. I ended choosing the same aggressive portfolio. For only two components it seems fairly diversified. I would have probably preferred it to be 75/25 mix, but it’s hard to be picking considering that it has Vanguard and lacks all the fees.

  2. MossySF |  Jul 30, 2007 at 1:34 pm

    You can always pick the mix yourself. I split it evenly amongst S&P500, Extended Market and Developed International.

  3. Moneymonk |  Jul 30, 2007 at 1:30 pm

    Good investment choices, you cannot go wrong with Vanguard.

    I have T Rowe Price for my little one. I started when I was 5 months pregnant ( excited, because it was my child ). I may have to look into Ohio for the next child.

    Another reason I love to blog, good information.

  4. Sun |  Aug 01, 2007 at 12:46 am

    Lazy: Yes, you can choose different funds to mix them up for your own allocation, but I wonder if it could produce better return given the small number of choices. Increasing the international portion could help a little bit.

  5. Jel |  Aug 06, 2007 at 3:42 pm

    What’s the advantage of setting up a separate 529 for the second child? We just doubled our contribution when the second one was born. We use Nebraska’s plan. It wouldn’t be the one I would pick now, but I’m paying the maintenance fees there anyway already for my first child. The investment choices are pretty good there. So what’s the advantage of having a separate 529 for each child?

  6. Sun |  Aug 15, 2007 at 10:42 pm

    Jel: The main reason for me to open another account instead of just adding another beneficiary to the existing account is that I am not very happy with the fund (through UPromise) I chose for my first daughter because of the $20 annual fees it charges, though the fund is also managed by Vanguard. The cost is slightly higher as well. When I opened the first account, I want to use the rebates from UPromise credit card and invest
    them, so the UPromise fund seemed to be an natural choice. Now I don’t have that need, so I want to select a fund that’s cheap and performs well. And getting another account didn’t add too much of burden in
    managing them.

  7. Ken Clark |  Mar 19, 2008 at 1:42 am

    Great post. Thanks for giving everyone a step-by-step view!

    -Ken Clark

  8. Ken Clark |  Mar 19, 2008 at 1:44 am

    Thanks for sharing the step-by-step on setting it up! It’s always great to hear other people’s reality based experiences, and make an informed decision about each plan.