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College Funds 529

By Terry Savage on May 15, 2016 | College Savings / Student Loans

As grandparents, we have invested in the Oppenheimer Bright Start 529 funds for our six grandchildren, ages 2 – 8. Sometimes the amounts go up, other times they go down. For example, a $15,000 account grows as little as $60 a quarter. Would you advise that we continue investing in these funds? Many thanks!

Terry Says:  The good thing about a 529 account is that the money grows tax-free.  The upsetting thing is that your investment returns depend on the fund choices you make WITHIN the plan.   Most people invest in the age-based plan –which gives more aggressive investments for younger children (who have longer to make the money grow) and becomes more conservative as children get closer to college.

Now, I want to say something special about the Illinois Bright Start plan.  I stopped recommending it about eight years ago — when their most conservative option intended for those going to college in the next year abruptly lost a huge amount of money.  Turns out the portfolio managers made unauthorized trades and left the firm.  The Illinois AG settled, along with attorneys general from other states — but the full amount was not refunded.  And Oppenheimer continues to manage many of the Bright Start assets.  For that reason, I would never put another penny in the Illinois Bright Start plan — even though as an Illinois resident you get a small tax deduction for using the Illinois plan.

I recommend either the 529 plan managed by Vanguard or Fidelity, and have used them for my own relatives and friends.  You can have more than one 529 account.  So make next year’s contributions to a new plan.  Remember,  they can use the money in the plan for any college or university in any state.  So you’re most concerned about the investments you choose within the plan, and the costs of the plan.

To learn more about how various plans perform, go to www.savingforcollege.com.  You will see that the Illinois Bright Start plan had one of the top performance ratings last year, but that doesn’t do it for me!



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