Knowing the fees associated with Vermont's 529 plans can help you make an educated financial decision when opening a plan for yourself.
For families across the nation, 529 plans represent one of the best opportunities to build up a savings account for college. These tax-advantaged plans allow families to invest their contributions in a variety of different funds and portfolios, and each state has its own version (or multiple versions) of this type of account. Because families can enroll in almost any 529 plan in the country, there are a lot of options to weigh when choosing the right account, and fees are among the most important factors to consider. Though they may not seem all that significant at first, the expenses associated with the various plans and investment options can quickly eat into an account’s earnings. Here, we’ll look at what fees are associated with 529 plans in Vermont; keep reading to find out more.
Depending on the state, there are three different versions of the 529 plan that can be offered: education savings plans (formerly known as college savings plans), prepaid tuition plans, and ABLE accounts (a.k.a. 529A accounts). Like many states, Vermont chose to eschew the prepaid tuition plan in favor of the more flexible education savings plan and ABLE account.
The first of these 529 plans – and the one most people enroll in – is called the Vermont Higher Education Investment Plan, which is a type of education savings plan. Like other, similar accounts, those with this Vermont 529 plan make contributions toward the balance of the account, after which the funds are invested in one or more portfolios. The key difference between this kind of 529 plan and other investment accounts is that the earnings in this plan are entirely tax-free, both at the federal and state levels, as long as the money is put toward a qualified distribution.
The second 529 plan available from Vermont is simply called Vermont ABLE. In many ways, ABLE accounts like this one function identically to education savings plans; contributions are made, the funds are invested, and the balance grows tax-free. However, ABLE accounts are intended as a financial tool for Americans with disabilities, so they are both more exclusive – only someone with an established disability can enroll – and more flexible. The funds in a Vermont ABLE plan can be put toward education, job training, housing, medical bills, and other essential expenses related to life with a disability.
When determining what fees are associated with 529 plans in Vermont – or anywhere else, for that matter – you should first check whether the plan is direct-sold or advisor-sold. The first of these options refers to a 529 plan provided directly through the state; the second refers to a plan provided by a financial firm, and this type of account typically comes with higher fees to cover the additional services offered.
It’s also worth noting that different investments carry different types of fees. Investing in an actively managed fund, such as a mutual fund, will likely mean greater costs, while passively managed funds, which follow the market index without constant oversight, are generally less expensive. As a result, 529 plans often feature a range of fees that vary based on an account owner’s investment choices.
Additionally, most fees associated with 529 plans are deducted as a percentage of the account’s balance, so the owners of larger accounts will end up paying more. This is true not only in Vermont but also in every other state; the difference comes down to what percentage they charge for the plan. Miscellaneous fees also come into play, but they tend to be static, and often amount to less than $50 per year. The following are the fees associated with 529 plans in Vermont:
This direct-sold plan features half a dozen age-based portfolios to choose from, plus five multi-fund options for investors with static portfolios. The former changes over time as the beneficiary approaches college age; the latter does not. Vermont also offers a life insurance option.
• Enrollment fee: None
• Account maintenance fee: Account owners who receive documents via mail will be charged $10 per year; those with electronic document delivery have no fee
• Program management fee: Each portfolio carries a 0.05% administrative fee, plus a management fee that ranges from 0.27% to 0.30%
• Investment fee: Depending on your investments, you could be charged between 0.04% and 0.07%, but there’s no fee for the Principal Plus Interest option.
• Total fees: Between 0.39% and 0.42% for each portfolio, with no fees for the Principal Plus Interest option, and a possible $10 annual fee
Through Vermont ABLE, residents of Vermont can save and invest without affecting their Social Security or Medicaid benefits, but only up to $100,000. Investments are sorted into four options based on level of risk, and there’s a BankSafe option insured by the FDIC.
• Enrollment fee: New account owners filing paper applications will be charged $50, but online applications are free.
• Account maintenance fee: $3.50 per month for each account, or $42 annually
• Program management fee: A flat administrative fee of 0.19%
• Investment fee: Between 0.11% and 0.14%, depending on the investment; no fee for the BankSafe option
• Total fees: Depending on the investment, between 0.19% and 0.33%, plus $42 per year per account
Whether your interest lies with Vermont’s 529 plan or that offered by another state, the free Sootchy app makes it easier than ever to enroll. Simply download our app on your mobile device, and you can manage your investments, make contributions, and even invite friends and family to help fund your child’s education. Learn more by visiting us online today.