Financial Planning Blog

If you are an Idaho resident looking to start saving for future higher educational expenses via a 529 plan, the IDeal-Idaho College Savings Program is the logical choice. It is a relatively simple plan offering diversified Vanguard portfolios, and a reasonable asset-based annual fee of .75%. Although these fees are not excessive by 529 plan standards, IDeal is not among the lowest cost plans available. And, in the world of investing, higher costs are a drag on your earnings and should be avoided whenever possible.

The real advantage to the Idaho 529 plan, of course, is the generous state income tax deduction of up to $8,000 per year for a married couple. This opportunity to save 7.8% (Idaho's marginal income tax rate), or almost $625 on an $8,000 529 plan contribution, is a big deal. Even though you can find plans with similar, but more flexible investment options and lower than 0.25% annual fees, it is unlikely these advantages will offset the impact of the Idaho tax deduction.

If you have the good fortune, however, of having an out-of-state grandparent who is considering contributing to your Idaho children's college fund, don't assume IDeal is the best place to establish the account. First, the grandparent may be situated in another state where there is a similar tax deduction for 529 contributions (over thirty states have them), and it may make sense to use one of that state's 529 plans. Assuming there is not a tax deduction available, or the plan is unacceptable for other reasons, try looking for a lower cost plan than Idaho's IDeal. Looking at other state's plans may also make sense if you are putting away more than $8,000/year into your children's college fund. Although it may be a bit of a hassle to fund an additional account in another state, the lower fees and additional investment options may make it worth the effort.

With so many plans available (over 100) it may seem a bit daunting to shop for an alternative 529 plan. A couple of good choices to check out are listed below, but you can do your own research at www.savingforcollege.com. You might also want to look at Morningstar's reviews or their latest assessment of the best, and worst, 529 plans. 

One plan to put on your list to consider is The Utah Educational Savings Plan. It was one of Morningstar's top picks, and the state offers a tax credit of up to $174/beneficiary. Like IDeal, the Utah plan is based on low cost Vanguard funds--however, it offers a wider range of portfolio options with a broader selection of underlying funds. The overall annual asset-based fees run from 0.22% to 0.35%, depending on your investment choices. You would have the opportunity to save over 0.5% per year in comparison to the Idaho plan. If you are saving a substantial amount, and assuming the same gross investment returns, saving around 0.5% in fees per year could result in thousands of dollars in additional funds available to apply to your child's education.

Another plan to investigate is The Vanguard 529 Savings Plan from Nevada. It is not as low cost as the Utah plan, but is much more flexible. You have the opportunity to select from a much larger selection of Vanguard index and actively managed funds. It offers essentially the same age-based portfolios as IDeal, but the annual fee is only 0.5% (0.25% lower).

Doing a little research on 529 plans is not just about finding the lowest cost, however. A number of plans, including Oregon's, had significant issues over the last year, so it is worth some due diligence. Investing always involves some level of risk, but you want to manage that risk the best you can. If you would like to discuss your college savings strategies and options, give Table Rock Financial Planning a call.