Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

January 22, 2013
What about fees when investing in a 529 college savings plan?

Q: We recently changed financial advisors and are now putting away money for our grandkids in a different 529 fund. Previously, the fund was "CollegeBound" managed by "National Planning Corporation." The quarterly statements never listed any investment costs.
Now with our new financial advisor's recommendation, we are investing with Franklin Templeton Investments in the "Franklin Templeton 529 College Savings Plan" and are paying an initial 3.5% each time we invest.

We never saw any costs associated with investing with "CollegeBound". You recently recommended taking a look at California's 529 college savings plan called "ScholarShare". The most that any of the ScholarShare plans charge is summarized as an annual "Total Annual Asset Based Fee" of 0.61 percent (most charge .3 percent or less).

My question: Is 3.5 percent a reasonable fee for each monthly investment? I did ask our advisor about it, but her response didn't make sense at the time and I wasn't aware of the Scholarshare plan with its documentation detailing expenses.
Thanks, Papa - Roseville

A: A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code, which has been in existence since 1996.

California's ScholarShare program is managed by TIAA Cref. There are typically two ways of investing in a 529 plan: Direct-sold 529 plans, which is a do-it-yourself way of investing, and institution/broker-sold plans.

The direct-sold plans allow for much lower management fees and are free of broker-originated sales charges, often called loads. With a direct-sold plan, you are solely responsible for fund selection.

The other way of investing is through your broker or financial institution. This option generally allows for a broker or financial advisor to analyze your investing time frame, risk tolerance and other personal needs. The advisor will then make the appropriate choices for your situation.

From a cost standpoint, the 3.5 percent fee you reference is the sales load you pay each time you buy units of the funds chosen. Purchasing funds and paying a sales load during each contribution may greatly reduce the accumulation potential of your minor's account.

In California, you can make contributions to a 529 plan until all accounts for a single beneficiary reach $350,000. However, contributors should also take into account the annual federal tax guidelines on monetary gifts.

There is little doubt the cheapest way of investing in a 529 plan is the ScholarShare program. Just be aware that cheaper is not always better.

Ask your advisor for a detailed college planning analysis of the least expensive/most effective options. These should include a 529 plan, a Coverdell Education Savings Account and qualifying U.S. savings bonds, which are tax-deferred for federal and tax-free for state.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

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