New York Cuts Fees for College Savings Plan by Almost 50% to Aid Families

The state of New York is giving families who participate in their 529 college savings plan a break, by cutting fees almost in half. Comptroller Thomas DiNapoli claims that the reduction will help families save more for college and assist residences of the states who are strapped financially. Bloomberg published a great piece on the announcement; you can find a snippet of it below or read the full article at Bloomberg.com.

New Yorkers who participate in the state’s 529 college savings direct plan will see fees cut by almost 50 percent, New York State Comptroller Thomas DiNapoli said.

The direct plan’s total annual asset-based fee declined to 0.25 percent from 0.49 percent starting Aug. 29, according to a statement today from the comptroller’s office. The reduction could result in savings of almost $20 million annually for plan participants.

“Family budgets are getting tighter, but families still need to save for college,” DiNapoli said in the statement. “When you’re saving for college, every dime counts.”

The reduced cost means New York’s fees are among the lowest for directly sold 529 plans, said Laura Pavlenko Lutton, editorial director in the fund research group at Chicago-based Morningstar Inc. The New York plan offers investors 16 investment choices from Vanguard including three that change the investment mix as beneficiaries near college. Account fees for age-based options, which are the most popular nationwide, range from 0.20 percent to as high as 2.27 percent, Lutton said.

‘Pressure on Fees’

“There’s pressure on fees, which is a great thing for parents and grandparents investing in 529 plans because that’s more of your nest egg that you get to keep,” she said.

Top College Savings Plan

With the cost of going to college increasing more and more each year, parents and grandparents need to start saving now. Many students and families are faced with the tough decision of how to pay for higher education—it is a tragedy when families have to make the decision not to attend college due to the inability to afford tuition cost. I have always been an advocate for making it possible for young people to attend college—I have personally sent five young adults to college! The best way to ensure your loved one gets a college education is to save for the expense. A 529 savings plan is recommended as a great investment for your future college plans.

These savings plans do not get taxed federally and many states also give a state income-tax credit for having one. Check whether your state offers a tax break and take advantage of it. To escape federal taxes on the distribution, you must use the 529 savings to pay for qualified educational expenses such as tuition, books, fees, room and board. Don’t worry, the 529 accounts are flexible. If your child doesn’t want to go to college, you can transfer funds to another family member without losing the tax benefits. If you do need to withdraw the money and use it elsewhere please know you will pay taxes on the distribution and a 10% penalty on the earnings. Buy a 529 savings account directly from your state and you will avoid paying commissions or adviser fees. According to Klipinger.com more than 60% of investors put their 529 money on autopilot by choosing age based portfolios.

Special IRS Web Section Highlights Important Credits and New Additions

The IRS posted this new press release recently highlighting back to school tax breaks, an expansion of the 529 plan, and the relatively new $2,500 college tax credit. Check out an excerpt of the release below.

The new Tax Benefits for Education section on IRS.gov includes tips for taking advantage of long-standing education deductions and credits. The “one-stop” location for higher education information includes a special section highlighting 529 plans and frequently asked questions. The Web section also features two key changes that will be in effect during 2009 and 2010 that were included in the American Recovery and Reinvestment Act (ARRA), enacted earlier this year.

One change allows families saving for college to use popular 529 plans to pay for a student’s computer-related technology needs. Under the other change, more parents and students will be able to use a federal education credit to pay part of the cost of college using the new American opportunity credit.

“With many families struggling to afford college, we want every eligible taxpayer to know about their options and take advantage of all the tax breaks they can,” said IRS Commissioner Doug Shulman. “529 plans have become a very attractive way to save for college, and our Web section is designed to help people get information about these plans. In addition, the new American opportunity credit can help many parents and students pay part of the cost of the first four years of college.”