529 Plans Get a Makeover, Thanks To Fidelity


Parents looking for a break on their college savings plans caught one this month from Fidelity Investments. The investment giant is cutting fees, changing the eligibility age for kids, and positioning its college-savings funds to take advantage of growing economies overseas.

The changes should be welcome. No doubt about it, Americans have really come to depend on the 529 plan to raise funds for college. According to the Financial Research Corp., total assets in all U.S. 529 savings plans were $111 billion as of Sept. 30. That’s a 12.7% rise compared to June 30, when assets were $98.6 billion.

To make things a little easier for parents, and maybe changing the landscape of the college 529 plan in the process, Boston-based Fidelity Investments is changing the way it charges fees on the seven state-sponsored plans it handles.

Specifically, Fidelity has slashed program management fees by 50% (down to 15 basis points) for its index-managed investment portfolios, and by 10% for its actively-managed portfolios.

The investment giant has also cut fees tied to adviser-sold 529 plans by one-third.

The new fee range for the Fidelity 529 Plan now looks like this:

  • Total index-managed portfolio fees now range from 0.25% to 0.35% of plan assets.
  • Total actively-managed portfolio fees now range from 0.59% to 1.04% of plan assets.
  • For adviser-sold plans, total fees now range from 0.84% to 1.48% of plan assets.

Fidelity is also adding some new funds to its eight age-based 529 portfolios. New additions include the Fidelity Emerging Markets and Fidelity Advisor Emerging Markets funds, which roll out at a time when many stock market prognosticators predict tough times in the U.S equities markets in 2010, but call for rosier returns from overseas markets.

Fidelity is also adding a high-yield fund (the Fidelity Advisor High Income Fund) to its 529 portfolio line-up. In addition, the company is bumping up its international equity exposure from its current range of 0%-20% to 30% — once again to leverage expected asset growth in foreign stock bourses.

Fidelity was among the first investment houses to offer college 529 plans, and is considered a bellwether by Wall Street-types in the area of college fund programs. With long-term investment plans, which pretty much define 529 plans, a primary concern among parents is the cost of the plan. Plus, participating states (Massachusetts, for example, contracts Fidelity to handle its 529 state-sponsored investing plan) are lobbying investment firms to keep costs down in a sluggish economy.

By cutting fees, Fidelity has sent a volley across the college 529 market — we’re going to give parents a lower-cost plan.

Expect other big providers to follow suit.

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