With college tuition fees now way higher than what they were two decades ago, parents are under increasing pressure to stump up enough cash to send their kids off to their dream college. A savings vehicle to consider is a 529 plan, which can be accessed through many brokers/advisors including Wealthfront. Check out our Wealthfront 529 review below to find out what’s involved.
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During the school year 2018-2019, the average cost of tuition and fees was $9,716 for state residents at public colleges and a whopping $21,629 for out-of-state students at state schools. Multiply these figures by the length of time it takes to earn a bachelors degree (4 years), and one thing’s for sure – a college education doesn’t come cheap.
A 529 is a tax-advantaged investment savings plan that offers parents the chance to sock away savings where they’ll have the opportunity to grow (tax-free) over several years, to help fund the costs of college education.
Other than tax advantages, a 529 plan offers benefits including:
- Superfunding – by investing a large sum at the outset, there’ll be ample time for compounding.
- Parental control – parents retain ownership of the 529 plan (the child is the beneficiary), so they’ll be in complete control over when and how the savings are used.
Wealthfront is a robo-advisor that also offers comprehensive financial planning tools. Through the platform, anyone with at least $500 to invest can set up an investment portfolio to work towards their financial goals, such as planning for retirement or saving for kids’ college education.
Wealthfront’s technology will help build a diversified portfolio, made up of tax-efficient, low-cost ETFs. Automatic portfolio rebalancing and daily tax-loss harvesting on all taxable accounts are included as part of the service. For account balances between $100K and $500K, stock-level tax-loss harvesting is also available.
Wealthfront charges an annual advisory fee of 0.25% and offers a wide range of account types, including a 529 plan.
Through Wealthfront, families can open a 529 plan online at their convenience, by filling in a short questionnaire. Wealthfront then recommends a personalized portfolio, based on the information provided. Advice is provided on how much parents should be saving each month to keep their savings goals on track.
With Wealthfront’s 529 plan, Nevada residents, in particular, will benefit from having the first $25,000 managed free of charge. (The State of Nevada sponsors this plan). The contribution limit is up to $370,000 per child.
Investment management fees also apply in addition to the 0.25% advisory fee, but all in all, you won’t pay more than 0.46% with the Wealthfront 529 plan. In Wealthfront’s own words, this makes their 529 plan the lowest cost advisor-sold option currently available.
Note that if the money in the plan is withdrawn for something other than qualified higher education expenses, federal income tax will need to be paid, and a penalty of 10% may also be imposed.
We looked to the app stores for genuine reviews of Wealthfront as a complete package. Regarding overall service as a robo advisor, the app scores very well with (4.5 / 5) on Google Play and (4.9 / 5) in the App Store. Customer reviews on Wealthfront’s 529 plan are few and far between, but feedback from financial experts online is mostly positive.
For example, Savingsforcollege.com believes that Wealthfront offers a convenient solution for college savings, with personalized advice, plenty of investment choices and low fees being a bonus. However, they pointed out certain downsides to using Wealthfront’s 529 plan including the high account minimum of $500, which might make it difficult for families to find the cash to get started.
Then there’s the fact that using this plan might lead to the potential loss of state tax benefits. Families should explore their own state-sponsored 529 plan before looking at Wealthfront or anywhere else, as other benefits may be available, such as state tax deductions. Wealthfront also points this out on their website too.
Many financial experts believe that a 529 plan is the best way to save for college. Wealthfront’s plan may be an ideal solution for those wanting low fees along with a personalized investment portfolio, plus tools to keep on track with saving goals.
However, families should note that it’s possible to invest in a 529 plan directly, without going through an advisor. The DIY route usually offers the advantage of lower expenses, but professional financial advice won’t be on hand as it would through an advisor.
*We hope you’ll find this information useful when investigating options for college savings. Please note that it shouldn’t be construed as professional financial advice.