List of 529 Day (5/29) College Savings Plan Promotions 2023

Posted on May 22, 2023 // 9 Comments

Updated for 2023. 5/29 is “National 529 College Savings Plan Day” and every year a few state plan offer promotions and/or giveaways. Most offers end by May 31st. Some offers require in-state residency, but some don’t. 529 plans can now also pay for K-12 tuition and other educational expenses beyond college tuition and room/board.

I find that having an open 529 plan is a great way to redirect various cash gifts from friends and family (like grandparents) so that the money doesn’t just get spent mindlessly and then forgotten. Finally, opening a plan and making any contribution also starts the 15-year clock on potential future 529-to-Roth IRA rollovers.

Here’s a list of what I could find, please let me know if you find more. I’m listing the state, but you do not have to be a resident of that state to open a 529 account there. You can have multiple 529s from different states. However, you may need to be a resident to qualify for a specific bonus, or there may be an age restriction on the beneficiary, etc.

Filed Under: College & Education, Deals & Offers //

Worried About Unused 529 Funds? New 529 to Roth IRA Rollover Option

Posted on May 3, 2023 // 10 Comments

One of the concerns about contributing to 529 plan for college savings is that you won’t end up using all the money and end up being hit with additional taxes (at ordinary income rates) and penalties on an non-qualified withdrawal. The funds potentially would have been better off simply invested in a taxable brokerage account (and long-term capital gains rates).

This was partially addressed within the SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act (CAA) of 2023. Specifically, Section 126 [PDF link], “Special Rules for Certain Distributions from Long-term Qualified Tuition Programs to Roth IRAs”, which adds the ability to roll your 529 funds into a Roth IRA both tax-free and penalty-free starting in 2024. Kitces.com covers many of the major points. Here is a quick summary of the rollover requirements:

  • The Roth IRA receiving the rollover money must be owned by the beneficiary of the 529 plan. (Unless the beneficiary is also the owner, the money can’t go to the owner’s Roth IRA.)
  • The 529 plan must have been open for at least 15 years.
  • The rollover amount must have been in the 529 account for at least 5 years before your distribution date (contributions and attached earnings).
  • The annual rollover amount is limited to annual IRA contribution limits, and is reduced by any “regular” Roth IRA contributions made during the tax year. (You are not able to exceed the usual max contribution limits. However, the income (MAGI) limits that usually lower the contribution limits due to high income do not apply.)
  • The Roth IRA owner still needs to earn taxable income, at least equal to the amount of the rollover.
  • The maximum lifetime amount that can be moved from a 529 plan to a Roth IRA is $35,000 per person. (This may not be as much in 15+ years if they don’t increase it with inflation.)

In general, this seems like a reasonable way to alleviate the over-contribution concerns, although the money must still technically go to the beneficiary (usually the kid) and not the owner (usually the parent or grandparent). Previously, options for leftover money included graduate school, changing the beneficiary to another family member or future grandchild, or paying back up to $10,000 in qualified student loans.

There are a few interesting, potential wrinkles that a few readers have pointed out:

  • Making yourself both owner and beneficiary to fund future Roth IRA contributions for yourself (even with no kids). As you aren’t really increasing the total amount you are able to stuff into a Roth IRA in the future, the primary benefit is basically to access the tax-deferral benefit early. For example, you could put in $2,000 today and expect to roll over $6,000 in 15 years (7.6% annualized return). The exception may be if you expect not to be able to do Roth IRA contributions in the future because your income is too high AND the Backdoor Roth IRA method is not available to you. Still, 15 years is a long time to wait, and the law may change in the future to restrict this type of move. In such a case, it may backfire and subject you to taxes and penalties.
  • Planning to change the beneficiary from kid to yourself later on. Maybe you don’t want your kid to have the unspent funds, and plan to simply change the beneficiary to yourself later on. However, it’s not 100% clear if beneficiary changes will reset the 15-year clock or otherwise affect rollover eligibility. The law specifically restricted the rollover
  • Contributing extra money for the specific purpose of early funding for your children’s Roth IRAs. This might spur higher-income parents to put even more money into their 529s on purpose, as you are essentially indirectly able to fund a Roth IRA with tax-deferred growth for your kid way before they have earned income. When they eventually do have any form of earned income from a part-time or entry-level job in their teens or early 20s, the money can just roll into their Roth IRA officially (up to the limits).

I don’t have any immediate plans to take advantage of any of these potential scenarios, but taken together it does make me feel better about the 529 contributions that I have already made. Which I suppose is the overall idea?

In terms of other actionable advice, it may be worth it to start a 529 for each child immediately or as soon as possible, even if only putting in $25 or whatever is the minimum amount, just to start the 15 year clock in case you do want to take advantage of this feature down the road. There are countless examples out there of the benefit of starting the compounding early, especially when it can keep growing tax-free forever.

Filed Under: College & Education, Family, Investing, Retirement //

Refinery29 Money Diaries: Interview Questions Answered

Posted on March 28, 2023 // 3 Comments

I’ve always been fascinated by stories about money. There are just so many ways that people earn and spend their money, yet we rarely share because we are taught to be secretive about it. I recently discovered the Refinery29 Money Diaries such as A Week In Portland, OR, On A $105,000 Salary. There is even a book. The participants are all asked the same set of questions, and I have answered them myself below as an interesting exercise in self-reflection.

Was there an expectation for you to attend higher education? Did you participate in any form of higher education? If yes, how did you pay for it?

Yes, there was definitely an expectation for me to attend higher education. My parents were willing to help pay for some of my tuition, but they had limited resources and there was definitely a “value” hurdle. If they personally didn’t think the school was worth it (based on their personal opinion of the school’s reputation), they weren’t going to help pay for it. I applied to about four schools.

I am very thankful that my parents did help me with a significant portion of my college tuition and boarding costs. I finished my undergraduate degree with about $30,000 in student loan debt (this was over 20 years ago now). I went straight onto grad school and at that point was able to cover my own tuition and living costs using a fellowship stipend and income as a graduate student instructor and/or researcher. I started paying down the $30,000 in student loans during my graduate school years (helped by various side hustle income) and finished paying it off completely within 4 years of finishing my undergraduate degree. A major motivator was that I wanted to be debt-free before proposing marriage to my then-girlfriend.

Growing up, what kind of conversations did you have about money? Did your parent/guardian(s) educate you about finances?

I don’t remember many direct conversations about money, but I did a lot of learning through observations. I saw frugality, self-discipline, and not being wasteful. My parents did not buy things without carefully considering the cost-to-benefit ratio. We hardly ever ate out at restaurants. They did not focus on material things, and were very practical. They worked long hours, played it safe, followed the rules, and built a very solid life over time. Education was highly valued.

However, I wasn’t exposed to things like entrepreneurship, taking asymmetric risks, or investing in stocks and real estate. That journey was left to me, but I felt that I had a very stable base to get there. I knew how to live below my means, even if my “means” started out as less than $20,000 a year of annual income. I could create the raw material of having money left over to invest.

What was your first job and why did you get it?

My first job was probably either a math tutor or restaurant cashier at around age 16. Here is a list of every job I’ve ever had.

Did you worry about money growing up?

My observation is that kids notice money issues when they have a different experiences from their friends. Most people who “didn’t feel poor growing up” had that feeling because all of their friends were in the same situation, for example living together in a homogenous neighborhood or housing development. Similarly, post people who “didn’t feel RICH growing up” also had that feeling because all of their friends were in the same situation. I’m afraid that my kids are going to be in the latter group.

In my case, my parents put a premium on a good public school education but were probably below the average income level, so we usually ended up living in a cheaper rental in an affluent neighborhood. Therefore, I definitely noticed that I lived in an apartment or duplex when my friends lived in a single-family house. We drove the old import car when they pulled up in the brand-new SUV. The four of us shared a single bathroom, while others had their own bedroom and their own bathroom. I still had a happy childhood and was never hungry or scared, but I did notice these types of things.

Do you worry about money now?

I probably shouldn’t, but yes, I do. Rationally, I should just be thankful for my health and my family’s health. Those are gifts that can be taken away much more easily and suddenly than my relatively-conservative investments and job income.

At what age did you become financially responsible for yourself and do you have a financial safety net?

I started graduate school at age 21 and that was when my income was high enough to pay all of my own bills. My $30k in student loans were in deferral, and I knew that I’d have to take care of them at some point, but my monthly cashflow was net positive.

I’m sure I had a few hundred dollars in my checking account as an “emergency fund”, but even more importantly, I always knew my parents still had my back even if I no longer received money from them. If something truly catastrophic happened, I knew they would come in and help. I’m sure I took it for granted at the time, but now in retrospect it is so valuable because it allows you to feel comfortable taking some risks in your life. Many people struggle today because they had to drop out of college early and were stuck with the tuition debt but no degree. Many people who had the potential to become doctors decided to become nurses because that was a surer, safer path.

Do you or have you ever received passive or inherited income? If yes, please explain.

I have not received any income from a trust or inheritance. My wife did receive an inheritance very recently. We plan to use any inheritance to help “pay it forward” and cover our three kids’ educational expenses and/or help them buy a first home. Both sets of grandparents greatly value education. While we didn’t receive any financial assistance for a home downpayment ourselves, I am not necessarily against helping my kids in such a way. (I would still be impressed if they can pull it off on their own.)

Filed Under: College & Education, Family //

University of the People: Tuition-Free, Accredited Online Degrees in Computer Science, Business Administration (MBA), Education (M.Ed.)

Posted on February 16, 2022 // 3 Comments

Did you know that there exists a tuition-free, accredited, online university where you can obtain an Bachelor’s degree in Computers Science, MBA, or Masters in Education for a tiny fraction of the cost of traditional universities? The University of the People was recently profiled by the NYT in How Can This University Charge Nothing for Tuition? (gift article).

Is is really free? Not quite, but I think the structure is very fair as it charges a small fee only when you are ready to earn course credit. From the NYT article:

The University of the People, which he founded in 2009, is an online-only institution that charges nothing for tuition. Students don’t have to pay for textbooks because all the educational material is made available for free online, and there’s no room and board because there’s no campus. They do have to pay $120 for each final exam, which they must pass to earn credits. For 40 courses, that adds up to $4,800 for a bachelor’s degree — although for students who face severe financial hardship, even the exam fees can be waived.

Here are the total approximate costs (not per year!) to earn a UoPeople degree:

Associate Degree: $2,460
Bachelor’s Degree: $4,860
Master of Business Administration (MBA): $2,940
Master of Education (M.Ed.): $3,180
Master of Science in Information Technology (MSIT): $3,660

To put this in context, if you assume four years for the BS/BA, that’s $100 a month. That’s less than the average monthly cable and internet bill.

The extra $60 is from the $60 application fee. You can also obtain transfer credit from your previous coursework and/or other free and low-cost educational sites like Saylor Academy, Sophia.org and Coursera to both speed up your progress and lower your total cost even further.

How is this possible?

How is it possible to make a degree so cheap? The instructors and many of the administrators, including Reshef, work for no pay. The chair of the President’s Council is John Sexton, president emeritus of New York University. Professors from top universities volunteer as deans. The instructors tend to be retired professors or recently minted Ph.D.s who are looking for teaching experience. Foundations and individual benefactors have also chipped in. “The amount of people who are willing to do good for the world is shockingly high,” Reshef told me recently.

This reminds of the intro for book Drive: The Surprising Truth About What Motivates Us by Daniel Pink (same author as Power of Regret), where the author reminds us that in 1996 there would two options for an encyclopedia:

  • Microsoft Encarta, run by a huge and profitable company and written by paid experts.
  • Wikipedia, run by a lean non-profit and written entirely by unpaid volunteers.

Today, I probably check Wikipedia once a day and Encarta has been gone for over a decade. People are not solely motivated by money. We like to be part of a greater purpose. (Although I have tried to contribute to Wikipedia and gotten deleted unceremoniously.)

UoPeople won’t work for everyone, but I find it very fascinating. I wonder if they incorporate volunteer tutors or “TAs” as well to help the students along.

See also: 2020 follow-up article on Georgia Tech Online Master in Computer Science, first mentioned in 2013. Total tuition about $7,000.

Filed Under: College & Education, Deals & Offers //

Coursera: Free Online Courses on Accounting and Finance

Posted on December 6, 2021 // 2 Comments

One of my newer interests is better understanding individual businesses and how they work. Accounting is the “language of business” used to write annual reports, 10-Ks, 10-Qs, income statements, and so on. I was afraid a textbook would be too boring, so I am auditing the online Coursera course Financial Accounting Fundamentals by Professor Lynch of the University of Virginia. Here’s a quick summary of what is covered in the course:

Accounting is often called the language of business. It is this language that organizations use to communicate their economic performance to others. In this course, you will acquire the tools that you need to understand the fundamentals of accounting, the language of business.

You will learn to record business transactions in the company’s accounts, understand how they flow into the financial statements, and learn to draw basic conclusions about an organization’s financial health from the three most commonly used financial statements, the balance sheet, the income statement and the statement of cash flow. Are you ready? Then let’s go!

Auditing is completely free and lets you view all the materials and take “practice” quizzes, but you can’t take the “real” quizzes needed to earn the “shareable certificate” (which is fine with me as this is just for personal improvement and not future employment). The course assumes no prior knowledge, requires a commitment of roughly 2-3 hours per week, and lasts for 5 weeks. I finished the first week in about an hour and a half by watching videos at 1.25x speed. So far, I’ve enjoyed filling in the gaps in my knowledge.

This course is the first of a 4-part series by UVA called Entrepreneurship: Growing Your Business:

Welcome to Entrepreneurship: Growing Your Business, a new specialization from the Darden School of Business, University of Virginia. This Specialization was designed to give you the real-world tools and processes you will need to take your business from idea, to action, to growth and revenue. You’ll learn how to create budgets and read financial statements, how to lead with values, how to leverage new business models for growth and how to create new business innovations. Ideal for entrepreneurs, small business owners, and those who have a business plan but aren’t sure what to do next, Entrepreneurship: Growing Your Business will help you on the path to success for you, your business and society.

There are a few similar Coursera courses from UPenn Wharton and the University of Illinois.

I used to feel that I didn’t need to know any of this stuff (just buy a Target Date fund and work on your career, etc), but now I want to compound knowledge in this area as well. I’ll be able to use it for the rest of my life as a private investor living off of my portfolio. This is also related to working for yourself for an hour each day.

Filed Under: College & Education, Deals & Offers, Investing //

Student Loans: File Waiver For Expanded Public Service Loan Forgiveness (PSLF)

Posted on November 15, 2021 // Leave a Comment

Like many folks, I left college with a negative net worth due to $30,000 in student loans. After reading through several articles about changes in the Education Department regarding student loans, I think the overall takeaway is that if you’ve had problems with your student loan management in past years, now would be a good time to check again – especially if you are working towards the Public Service Loan Forgiveness (PSLF) program.

The idea behind PSLF was that if you worked full-time in public service (ex. military, government, nurses, teachers, non-profit workers) and made regular income-based payments for 10 years (120 monthly payments), you would have the remaining balance forgiven at the end of those 10 years. However, this incentive turned out to be an elusive reward at the end of a long and winding maze. The program started in 2007, and as of April 2020, only a little over 2,000 people total (under 2% of the 145,000+ applicants) were ever approved for PSLF.

The maze appears to be opening up a bit, with over 30,000 people expected to be approved in 2021. Most importantly, you must take action and file for a PSLF waiver as soon as possible (must be done by October 2022):

On Oct. 6, 2021, the U.S. Department of Education (ED) announced a temporary period during which borrowers may receive credit for payments that previously did not qualify for PSLF or TEPSLF. Learn more about limited PSLF waiver.

The previous rules were pretty complex and rigid. For example, you could have been paying more than required, but if you weren’t on the right repayment plan, your payments didn’t count toward the 120 monthly payments required (10 years).

Under the new rules, any prior payment made will count as a qualifying payment, regardless of loan type, repayment plan, or whether the payment was made in full or on time. All you need is qualifying employment.

This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.

If you file for the waiver, these types of past monthly payments can now count towards the 120 required:

  • If you were previously ineligible because your loan was of the wrong “type” (will have to consolidate)
  • If you were on an “ineligible” payment plan method
  • If you were deployed active military and placed your loans on hold
  • If you had partial payments
  • If you had payments that were late

You must still be:

  • Employed by government, 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service
  • Work full-time
  • Have Direct Loans or consolidate into Direct Consolidation Loans. Private student loans are NOT eligible.

It is still rather confusing as to which jobs exactly qualify as “public service”. Your job description doesn’t matter, only the status of your official employer. You could be a teacher or a nurse, but one might be a nurse at a nonprofit hospital and the other might be at a private hospital (or their hospital changed from one to the other at some point, out of their control).

There are also now special considerations for borrowers misled by their schools. Examples of such schools include Corinthian Colleges (Heald College, Everest College, WyoTech), ITT Technical Institute, American Career Institute, Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute. This is called Borrower Defense Loan Discharge:

If your school misled you or engaged in other misconduct in violation of certain state laws, you may be eligible for “borrower defense to loan repayment,” sometimes shortened to “borrower defense.” This is the discharge of some or all of your federal student loan debt.

Students with total and permanent disability have also had their student loan debt forgiven. Students whose schools closed while they were enrolled may also receive loan forgiveness.

Notably, all student loan forgiveness is also considered tax-free at least through through December 31, 2025.

Even if you don’t work in public service, there are still other income-based repayment plans and forgiveness programs. I’m not an expert on the student loan landscape these days, but I would be careful before re-financing your student loans with a private lender as it is non-reversible. Be sure to understand the benefits (such as a lower interest rate) but also what you are giving up (such as these types of forgiveness options).

(image source)

Filed Under: College & Education, Deals & Offers, Debt //

Best 529 College Savings Plan Rankings 2021 – Morningstar (+ My Top Pick)

Posted on October 31, 2021 // 4 Comments

Investment research firm Morningstar has released their annual 529 College Savings Plans gold/silver/bronze medalist ratings for 2021. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored.

If you are among the 50% of the population who either don’t get an in-state tax break or have “tax parity” where you get the same tax break regardless of plan location, then you can open an account at any state plan across the nation. In my opinion, there are two ways to pick a good plan. You can pick the absolute top-rated one right now, or you can pick a consistent “Top 10” plan with a history of good behavior.

Here are the Gold-rated plans for 2021 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

All three of these plans were also rated as Gold last year.

Here are the consistently top-rated plans from 2011-2021. I’ve been tracking these rankings roughly since my first child was born. The plans below have been rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2021. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • My529, formerly the Utah Educational Savings Plan

The “Four P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research?
  • Parent. Does the state trustee and its partners put education savers first?
  • Price. How are the total fees relative to the competition?

State-specific tax benefits. Now, what if you are in the 50% who do have an in-state tax break that requires you to keep your money with the in-state provider? My general take is that your in-state plan is most likely decent enough these days that if you can max out the tax break, it’s worth it to stay. There may be some edge cases where if you keep a very large balance in a relatively expensive plan, then a cheaper plan might be worth going out-of-state.

Find details on your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Then compare the tax break benefit with how much better a gold plan is than your in-state plan.

If you change your mind later, you have the ability to roll over balances between different 529 plans. (Watch out for tax-benefit recapture rules if you got a tax break initially.)

My pick. I’ve simplified down to one single pick for my favorite 529 plan – the Utah My529. You’ll notice they are also the only plan on both of my lists above. They have everything that I look for: low costs, high-qualify investment options from Vanguard and DFA, reasonable automatic portfolios for those that want to set-and-forget, and highly-customizable glide paths for DIY investors.

I’ve rolled over all my other 529 holdings to Utah over the years. If you don’t have a tax break to keep you in-state, I recommend this plan. I don’t live in Utah myself, but Utah residents are lucky to get a tax break on top of having one of the top plans in the country. (No disclosure on this one, although I wish they had a referral program!)

Here is a chart showing how Utah keep lowering their fees over time. I like that the cost savings realized as they grow is being shared with customers, just like Vanguard.

Filed Under: College & Education, Investing //

529 College Savings Plan Flexibility: My529 Sends Money To All 50 States

Posted on July 25, 2021 // 2 Comments

My quarterly statement told me that the My529 plan (formerly Utah Educational Savings Plan) has been around for 25 years now, and included the map above which has dots from all the different places that they have directly sent withdrawals. All 50 states are covered. This is good reminder to examine the flexible options that 529 plans provide, many of which were added relatively recently:

  • Save and invest using the 529 plan custodian from any state. You don’t need to use the 529 plan from your home state (although you might get a tax break if you do – see below).
  • Easy to accept outside gifts directly into your 529 balance. Just as people like to use gift cards instead of cash, it can be easier to ask for a gift directly to your child’s 529 plan instead of the latest YouTube-fueled toy. You can often just send a link and the money goes directly into your 529.
  • Many investment options. You can choose an auto-pilot investment similar to a target-date fund (TDF), or you can mange your own glide path using a mix of active and/or passive index mutual funds. You can even stay super-conservative and invest in stable value funds or bank CDs.
  • Spend in any state. You don’t need to use the money towards a college in your home state.
  • Spend at a variety of educational options. 529 funds can be used at universities, colleges, certain overseas/international programs, trade and technical schools, apprenticeships, continuing education for adults, or K-12 private tuition.
  • Spend beyond tuition. 529 funds can be used toward room, board, fees, books, computers, supplies and equipment that are required by those educational institutions.
  • Scholarship exemption. If you end up receiving a scholarship, you can withdraw that amount from the 529 without paying the 10% penalty (normal income taxes on gains will still apply if not used towards qualified educational expenses).
  • Spend on student loans. 529 funds can be used toward the principal or interest on qualified student loans (up to $10,000 lifetime maximum for the designated beneficiary and each of their siblings).
  • Change beneficiaries. You can easily transfer 529 funds to another beneficiary, for example a sibling, nephew/niece, or even yourself. You can transfer funds from one 529 custodian to another.
  • Save for the next generation. With any leftover amount, you can even change the beneficiary to the next generation (grandchild), although it would be considered a gift for tax purposes. Still, even a small upfront gift can to a big number if left to grow for decades.

My eldest child is 8 years old, so that means I’ve been contributing to her 529 plan for 8 years, and she’ll be making withdrawals in perhaps only 10 more years! Many fintech startups are offering custodial brokerage accounts now, and while I do think there is a teaching opportunity there when she’s a teenager, until then I only plan on funding the 529 account. The investments grow tax-free, adjust automatically with age, don’t create any tax reporting hassles, and are flexible enough for my expectations. By starting early, the tax-free growth benefit can potentially save thousands of dollars in taxes.

More 529-related posts:

Filed Under: College & Education //

Coursera: Free Courses 2021 New Year Promotion

Posted on January 18, 2021 // 2 Comments

Online education site Coursera is offering a Learn a New Skill for Free in 2021 promotion with selected courses free until January 31, 2021. Here are a couple that are related to finance:

For example, you should see the $49 normal price adjusted to zero if you enroll in one of the courses above after visiting the promo link.

Filed Under: College & Education, Deals & Offers //

Best 529 College Savings Plan Rankings 2020 – Morningstar

Posted on November 1, 2020 // 4 Comments

Investment research firm Morningstar has released their annual 529 College Savings Plans gold/silver/bronze medalist ratings for 2020. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored. You choices are pretty much either your in-state plan for the tax benefits, or the best overall plan if you don’t have good in-state perks.

Morningstar changed their methodology slightly for 2020. The two changes that caught my eye were (1) the elimination of “Performance” as a standalone judged category, and the elimination of judging advisor-sold plans primarily against each other. Past performance is not a great predictor of future returns, while all fees are.

Here are the Gold-rated plans for 2020 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

Utah My529 and Illinois Bright Start Direct-Sold were both Gold last year as well. California Scholarshare and Virginia Invest529 were Gold last year but downgraded to Silver for 2020.

Here are the consistently top-rated plans from 2011-2020. I’ve been tracking these rankings roughly since my first child was born. The plans below have been rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. The Virginia CollegeAmerica Advisor-Sold plan was removed from the list as it was downgraded to Bronze in 2020. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • My529, formerly the Utah Educational Savings Plan

The “Five Four P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research?
  • Parent. Does the state trustee and its partners put education savers first?
  • Price. How are the total fees relative to the competition?

State-specific tax benefits. According to Morningstar, 42% of Americans live in states with no state income tax or state income tax benefit, and 12% receive state income tax benefits regardless of the plan they select. For the rest, remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% on your contributions can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I have recommended these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a consistent effort towards passing on future cost savings to clients. They lowered their fees again in 2020. This is the option for folks that enjoy DIY asset allocation (or simply don’t like all the tinkering done within some all-in-one funds). Since I like to DIY, the vast majority of my family’s college savings is in this plan.

Most 529 plans get better over time, but not always. I agree with M* that a consistent history of consumer-first practices is important, and I’ve experienced it with Nevada and Utah. It feels good to see my current plan just keep getting a little better every year.

Filed Under: College & Education, Investing //

Top 10 College Rankings by Return on Investment (ROI)

Posted on November 17, 2019 // 10 Comments

When I was applying to college, my parents went to the drugstore, bought a copy of US News & World Report magazine, and said that I could only apply to a school ranked in the Top 5 for my major (Engineering). That was the only out-of-state or private school that they would consider contributing any of their hard-earned money toward. That was their idea of “value” and “return on investment”.

These days, I am much more skeptical of college rankings. I feel that they are often reverse-engineered. If someone comes up with an intelligent algorithm, runs it, and the names of Harvard, Yale, MIT, and Stanford are not at the very top, what do you think happens? US News & World Report would dump it in the trash, in my opinion. Rankings are tweaked until the “name brand” schools end up on top.

That’s why it always grabs my interest when one of these rankings does NOT have a usual suspect on top. A Georgetown University study took some new federal data and ranked 4,500 colleges and universities by their return on investment. They took into account the actual cost of attendance, future earnings, and potential investment returns.

What school came out #1? Albany College of Pharmacy and Health Sciences. You can easily search for any specific school using their tool.

This WaPo article further discusses the results. Here are the top 10 schools based on ROI:

  1. Albany College of Pharmacy and Health Sciences
  2. St. Louis College of Pharmacy
  3. Massachusetts College of Pharmacy and Health Sciences
  4. Massachusetts Institute of Technology
  5. Stanford University
  6. Maine Maritime Academy
  7. Babson College
  8. Harvard University
  9. Georgetown University
  10. United States Merchant Marine Academy

Here’s some more food for thought. For the Albany College of Pharmacy and Health Sciences, the 25th-75th percentile range of SAT scores is 1040-1240 and the acceptance rate is 69%. The average annual cost for a family that earns less than $30k a year is $21,108, while a family earning $110k+ pays $32,700. The median income of former students (who received federal financial aid and were thus in the data) 10 years after entering school is $124,770. Obviously, this is affected by the fact that most students are studying a health science, but it is significantly more accessible to those who didn’t get a perfect SAT score, excel in certain sports, or have alumni connections.

For Harvard University, the 25th-75th percentile range of SAT scores is 1430-1600 and the acceptance rate is 5%. The average annual cost for a family that earns less than $30k a year is zero, while a family earning $110k+ pays $42,123 per year. The median income of former students (who received federal financial aid and were thus in the data) 10 years after entering school is $89,700.

I agree that college isn’t all about your future income, but given the huge impact of student loan debt, it should be one of the factors considered. The outliers noted are the schools focused on pharmacy/health-related fields and maritime academies. If my child had a serious interest in a medical profession and couldn’t get into an elite university, I would certainly take this information into consideration. I hadn’t even heard of these schools before now. Perhaps there are other pockets of “value” a bit further down in the rankings.

Filed Under: College & Education //

Morningstar Top 529 College Savings Plan Rankings 2019

Posted on November 12, 2019 // 3 Comments

Investment research firm Morningstar has released their annual 529 College Savings Plans analyst ratings for 2019. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored. You choices are pretty much (1) your in-state plan for the tax benefits or (2) the best overall plan if you don’t have good in-state perks.

Here are the Gold-rated plans for 2019 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

The top 3 were Gold last year as well. California Scholarshare is a new addition, upgraded from Silver. The Vanguard 529 Plan from Nevada was removed, downgraded to Silver. The reason stated was because their expenses were low, but not as low as the rest of the Gold-rated plans above.

Here are the consistently top-rated plans from 2011-2019. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. These were also the same as last year. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)
  • My529, formerly the Utah Educational Savings Plan

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

State-specific tax benefits. Remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I have recommended these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a consistent effort towards passing on future cost savings to clients. This is the option for folks that enjoy DIY asset allocation. Since I like to DIY, the vast majority of my family’s college savings is in this plan.

I feel that a consistent history of consumer-first practices is important. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?

Filed Under: College & Education, Investing //
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