529 College Savings Plans: The Good, Bad, and Ugly
May 29 (Bloomberg) –- JPMorgan Asset Management 529 Program Director Michael Conrath and Adviser Investments Chairman and CEO Daniel Wiener discuss 529 plans and the booming cost of college tuition. They speak with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)
Plans are not the only kind of investment that you should be making for college reparation.
Likes it is not the only investment.
Families have a lot of options.
To your point, given those $200 billion in these plans, it has become the premier way to save.
Considering the tax advantages.
And the control features.
It is a tremendous way to save for college.
How do you describe the 529? you hear that.
What do you want to know about the details?
529's in general have lousy investment options.
The expenses can be extremely high if you go the advisor rube.
To the point of jpmorgan, the expenses on the funds in their side of the plan are four times the expenses for the do-it-yourself index option through the vanguard side of then your plan.
There is no disclosure about performance.
You have to work -- you have to look really deep to find performance.
Jpmorgan onto the plant less than three years ago.
If you go to the 529 site community one-year returns.
If you go deeper in, if you go to jpmorgan site and look up these funds, you discover the returns are not very good.
Most of them don't meet benchmarks.
The third thing is the names on these plans are very confusing.
The vanguard has an option called moderate growth.
Jpmorgan has an option called moderate growth.
15% of that is in bonds.
You don't do well inside 529's unless you use them as an estate planning till.
As an estate planning till the are excellent.
They can put $140,000 in right away.
The tax is deferred.
That is fantastic.
Otherwise the investment options , the fact that most people can put enough money in these things to make them pay off anyway, it is not great.
You are better off getting a very aggressive equity funds, pletcher money in -- put your money in, let it grow.
You will do much better.
If you pick a good fund, you will do a heck of a lot better.
What you think that needs to change?
I think my guest is making some generalizations.
There are reason these have grown exponentially.
There are no two plans are alike.
Jpmorgan, being a newcomer to this space, has been advantageous.
We have been able to look at the arco plays, lizsten to our clients.
If you look at our program you will find a diversified solution.
Just like any other mutual fund, no two are alike.
We offer a plan that is going to give you diversification domestically and globally across stocks and bonds.
And a tactical overlay as well.
As markets evolve, and they do constantly, and in real time, we have the ability to manage.
The strategy is not set it and forget it.
What we have done is given a team the ability to be flexible and nimble.
As we see headwinds come our way, we can pull back on the reins.
Dan mentioned labeling these folios across the industry.
There are some that i be called conservative.
If you open up the hood, which i would encourage anyone to do, you might find the performed low is levered to pour fixed income.
If you have a child, if your child is eight years old or 10 years old, or further along and you're in this conservative portfolio, once rate start to move you may have unintended consequences.
Take a look at what is under the hood.
Managed to evolve as the markets do.
It sounds great.
There is no track record that prooves it is going to do well.
If you look under the hood, in the documents for the plan, and three basis point in performance that you can garner goes to building a better pool of money for tuition costs.
The fact is they are taking four times as many basis points out just in expenses alone before you get into the investment.
That is on their cheapest of their 529 options.
After that they say you have to look at the long time performance.
There is no data there.
You can talk about being tactical.
That is market time.
I haven't found one that can do it successfully.
There is no evidence in these plans that they are going to come unless you put a lot of money in right away, that they are going to actually get you to college.
D have response?
The team that manages the per folios, -- portfolios, they manage our target smart retirement funds.
Those same people are incorporated into the 529 plan strategy.
These are a component.
I could buy the lowest cost car there is.
I'm concerned about the performance of the vehicle.
I'm concerned about the handling.
Bombs in the road.
I'm concerned about the comfort and smoothness of the right.
There are tax advantages.
You will find our plan is far different than the typical plain-vanilla 529. obviously we are not going to come together on this.
The amount of money that goes into these plans, when it comes out, and it is used for educational purposes, this comes at with any tax ? you don't pay tax.
As long as you use it for education.
The cost of college is going up.
Much faster than inflation.
Long-term college costs have risen six percent per annum.
They have ratcheted back a tiny bit.
Six percent in an inflation world of two percent, college costs are skyrocketing.
Number one, you would have to put a ton of money away whether it is one of these plans, or in a very aggressive growth fund.
I can give you the ones that i like.
Vanguard dividend growth funds.
Would you say do that, pay the tax, and -- these are not tax inefficient funds.
The tax advantage is something the 529 people push.
There is an advantage there.
You're getting crappier performance.
If you're going to get lousy performance the tax advantage is moot.
I would rather pay more in the taxes.
I just want to ask you.
You mentioned this idea of different spaces that have different 529's. how do you explain to people that you might live in one state, but you might end up with a 529 plan in another state?
Are there advantages to that?
There could be.
The tax of images are the reason why many people invest in these plans.
At the end of the day it is an investment.
The investment is from one plan to another.
It might make sense for someone if they live in a state where there is not a state tax benefits, look at the investment options.
Take a look under the hood.
Look at the team that is managing the money.
I think about who is managing money for my little three-year-old girl?
That is first and foremost.
The other thing is, it comes down to planning.
40% of families do not have a plan to pay for college.
I want to thank you very much for joining us.
Dan wiener, advisor investments.
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