Fidelity Cuts 529 Plan Fees, Changes Age-Based Asset Allocations

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On December 1st, Fidelity Investments made significant reductions to the management fees on the 529 college savings plans that they manage. From this AP article:

Fees on indexed plans will be cut in half, while fees on actively managed and advisor-sold plans will be cut by a third, the firm said. Fidelity manages plans sold in Arizona, California, Delaware, Massachusetts and New Hampshire.

The changes mean a family with $50,000 in an indexed portfolio might now pay $125 a year in fees, instead of $250, assuming the amount in the plan remained unchanged. […]

Fidelity, which is based in Boston, said total fees for its direct-sold indexed portfolios will now range from 0.25 percent to 0.35 percent of assets. Total fees for actively managed plans will now range from 0.59 percent to 1.04 percent of assets.

Here is a PDF of their current expense ratios for their active and passive investment options.

According to this WSJ article, they’ll also be changing up their age-based asset allocations a bit:

Fidelity also said it plans to increase the international equity exposure in both its direct- and advisor-sold plans’ age-based portfolios to 30% of the overall equity allocation from a current range of 0 to 20%, and plans to add an emerging-markets fund to its age-based portfolios.

Both changes will be phased in over the next 12 to 18 months.

The reason for this is hardly altruistic, as Fidelity is a privately-held for-profit company. They needed to do this in order to stay competitive. The only reason I have 529 fund at Fidelity is that I have had it connected to their 2% back credit card. I’m still happy with the change though, which follows their recent addition of index fund options back in August 2009.

Despite these improvements, I still plan on shifting everything eventually to my account at the Ohio CollegeAdvantage 529 Plan, which offers inflation-protected bonds (TIPS) at a very low expense which I think are a great “safe” option for saving up for college. (They also offer a variety of low-priced index options from Vanguard.) Fidelity has no such TIPS option.

Also, until December 15th (soon!), they are still running a promotion where you can get $25 for signing up, $50 for referring others, and $25 for starting up automatic deposits. (A couple could earn $150 free for their kid’s education this way.) If you need it, my CollegeAdvantage referral code is 2439350.

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  1. Has fidelity offered the Fidelity Freedom Index Funds that you had mentioned few months back? I looked up on their website, but was not able to find it. If the are offering these funds, could you please point to the correct link? Thanks.

  2. Did they actually end up adding the freedom index funds? I can’t find them. What’s the symbol?

  3. Jonnathan,

    What’s the reason for investing in bonds? I ask this because you don’t have kids yet so that would put the investment horizon at a minimum of 19 years. The only thing I can think of is that the money is for you or your spouse to attend college.

  4. TIPS are a good call. The fed is trying it’s best to stoke the inflation fire and as usual will hold it is feel on the gas just a little too long. With the inevitability of a big uptick in inflation sometime in the next few year TIPS will be a very good place to be.

  5. @Ione @Time – I’m not sure what happened. I can’t find it either, right now they are primarily in the 529 plans, which was probably fueled by states demanding it.

    I could only find this article which mentions that they also exist in certain Fidelity-managed retirement plans.

    @Robert – 19 years may be long enough for stocks to outperform bonds, but the ride could be also rough. For something that is save for 19 years then spend in 1-4 years, I’d personally rather invest conservatively and make steady measurable progress. I may expands to stocks but it would like 60/40 stock/bonds. For retirement, I’ve got decades to ride out and rebalance and withdraw and work a little if needed.

  6. I had the 2% card from reading your blog.

    But now, there is no need to have the reward go into the 529 account. I changed it a couple of weeks back for it to go into mySmartCash account. I just received a credit today.

  7. Jonathan, big fan of your blog. I have Ohio CollegeAdvantage 529 Plan. I am resident of Virginia (i took advantage of $4000 in tax benefit Virgnia 529 plan but they do not offer CDs and their cost are higher compared to ohio plans). As In Ohio CollegeAdvantage 529 plan they are offering 5% CD ( i save there for safer savings. May i know why you prefer TIPS inside 529 plan? We do not need to pay tax on CD income inside 529 right? Are you expecting more than 5% on TIPs in returns?

  8. Jonathan, have you considered the VA VEST plan where you can get both TIPS and REITs for not much more expense (around 0.33)? A 529 is a great place to put these tax inefficient investments and it can free up other tax advantaged space (tIRAs, Roths).

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