Investment advice for college funds... math

[EOM]

I'm currently funding a 529 at Franklin Templeton, in the Targeted Age Fund for 2030. I'm contemplating moving it over to American Funds in their targeted age fund.

i suspect the funds to perform similarly based on their allocations. My reason for wanting to move is the FT fund charges 1.25% expense whereas the AF is between 0.7 - 0.8%. FT has a front-end load of 3.5% and AF comes in at 4.25%.

Based on my ability to calculate this, the move to AF benefits me in the long run over the next 12 years based on the reduction of recurring costs by 60%..... and eating a one time 82% increase on the load.

Am I off in my thinking?

 

[cbrunny]

If it's already at FT, haven't you already paid the front-end fee? So if you move to AF presumably you have to pay the full 4.25%?

 

[EOM]

If it's already at FT, haven't you already paid the front-end fee? So if you move to AF presumably you have to pay the full 4.25%?

True.... the fund is just over 10k so it'd be about $500 to move it. Do I make that up in the long run?

 

[dullard]

Based on my ability to calculate this, the move to AF benefits me in the long run over the next 12 years based on the reduction of recurring costs by 60%..... and eating a one time 82% increase on the load.

I ran the numbers quickly, and depending on your return (I'm assuming they are similar funds with similar returns) and the exact fee (you gave a range) the break-even point is about year 10. Meaning at 12 years you are just slightly better off moving the funds over. But it isn't enough that I'd deal with the hassle. You risk losing more in the transition (say stocks rise after you sold the FT but before the money got moved into AF) than you'd actually gain.

But, does the beneficiary actually need it in 12 years? The best advice is to give the 529 over in the senior year. That is because the 529 counts as income on the FAFSA if done earlier, so you might end up taking a chance for free or low-interest money away from the beneficiary if the 529 is used earlier than senior year. If you actually have 16 years until the beneficiary actually uses the 529, then it might be worth moving it.

That said, isn't there anything better? You are still paying an average fee yearly AND a high front load. For example, I've started a 529 plan for some relatives and the age-based aggressive plan is a 0.46% yearly fee and no up-front load.

 

[EOM]

I ran the numbers quickly, and depending on your return (I'm assuming they are similar funds with similar returns) and the exact fee (you gave a range) the break-even point is about year 10. Meaning at 12 years you are just slightly better off moving the funds over. But it isn't enough that I'd deal with the hassle. You risk losing more in the transition (say stocks rise after you sold the FT but before the money got moved into AF) than you'd actually gain.


But, does the beneficiary actually need it in 12 years? The best advice is to give the 529 over in the senior year. That is because the 529 counts as income on the FAFSA if done earlier, so you might end up taking a chance for free or low-interest money away from the beneficiary if the 529 is used earlier than senior year. If you actually have 16 years until the beneficiary actually uses the 529, then it might be worth moving it.

That said, isn't there anything better? You are still paying an average fee yearly AND a high front load. For example, I've started a 529 plan for some relatives and the age-based aggressive plan is a 0.46% yearly fee and no up-front load.

Where do you have your 529? That sounds cheaper than what I'm in! A motivator for me to use American Funds is their fees are lower than at Franklin, and over the long term that benefits me. Another consideration is they also offer a Coverdell account, which I want to open in case I opt for a private HS. It just gives me options. If not, using it for college is no big deal.