It’s been awhile since we've looked at 529 Plans and college savings. Last year we wrote an article about the Best 529 Plans for Minnesota Residents where MN 529 Plan actually was one the best for residents of our dear state. (Although this has changed if you read the article now). In this article we will look at whether or not it is still a good plan and then dive a little deeper into the investments and other benefits of the plan.
Is the Minnesota College Savings Plan the best? Well, it depends on what you mean by that…
Is Minnesota’s 529 Plan the best 529? – No, there are better college savings plan with lower costs and more investment options. For example, on a $10,000 investment, the lowest cost investment option in the Minnesota plan is still going to cost you $543 over a 10 year period of time while using the Kansas State 529 plan would cost less than $250 over that same period of time. (SavingforCollege.com study)
Is the Minnesota 529 Plan the best way to save for College?
So not only are there better 529 plans but there are also different savings options all-together. Many times we recommend Coverdell College savings account over the traditional 529 plan for the following reasons:
1) You can invest outside of a state sponsored plan. All 529 plans are sponsored by a state. Notwithstanding all jokes about State Governments being mostly inefficient and inept, having your money outside of the state plan means you have many more options to invest and usually at a much lower cost.
2) You can pay for things other than college. In addition to college expense you can also use your Coverdell account to pay for K-12 expenses.
Is the Minnesota 529 Plan the best 529 plan for Minnesota Residents?
Nope. Since Minnesota no longer allows deductions for contributions to their 529 plan you may as well shop around. Therefore, after looking at all the plans available to MN residents, I thought Wisconsin is one of the best for Minnesotans (and for non-Minnesotans alike) because of it's low fees and investment options. Go back and read that blog post here. Obviously, you have to decide for yourself based on your personal situation.
benefits and Features of the MN 529 College Savings Account
- You can save up to $350,000 per beneficiary (You shouldn't need to save more than this and if you let your balance get even close to this high you probably aren't planning right)
- You only need to invest $25 per investment option
- The plan includes age-based investments which certainly can make it easier when selecting which funds to invest in.
- Zero Enrollment Fees and Account Maintenance Fees
A Look at the Investment Options in the Plan
Principal Plus Interest – This fund guarantees a minimum rate of return of 1% and up to a maximum of 3%. While this doesn't sound all that great it is tax free and better than a cash or money market account. This would be a good option for when your child is nearing college age or actively enrolled. It will protect the money in the account so it’s ready to go when the university sends a bill.
US & International Equity Option – (Note: Equity is just a fancy word for stocks) This fund invests in a mixture of US and International stocks. This means greater diversification than investing solely in the US Equity Option. As well, historically International stocks have done well as the world becomes more globally connected. This fund would fit well in a portfolio that is trying to grow and therefore better used when your kids are young. You can combine this with the Principal Plus Option to further diversify.
Managed Allocation Options: These are the age-based funds that I mentioned earlier. This makes investing for your child easy because you only have to consider one factor when investing on behalf of your future college graduate, their age. I have a love hate relationship with these type of funds because on one hand they allow someone who has no idea how to invest make a reasonably decent decision with regard to portfolio allocation but on the other hand there are so many more factors to consider when allocating a portfolio no matter what your goal you are trying to achieve.
Overall the Minnesota 529 Plan may not be the best but it's certainly not the worst. If you already have a MN 529 plan opened is it worth switching? That depends on how long you have until college starts and how much you have invested, among other factors. I wouldn't worry if you have this plan already as you still have some good investment options and there are no real red flags to be concerned about.
Keep in mind these are just general reasons why the Minnesota 529 plan is good and bad. Your personal situation will ultimately dictate which plan you should be using. Everyone’s situation is different so we would need to discuss your financial situation before recommending any investment for you.
If you want to find the best way for you to save for college schedule a meeting or contact us today!