Natali Morris Blog

September 9, 2016

Tips For Managing Your 529

Not all 529 plans are created equal. Did you know that? You could have your kids’ college money in a pretty high-fee account, unaware that your money could do a heck of a lot better somewhere else. I want to help you figure out how.

What is a 529 plan?

It is a college savings fund that you set up for your child that can grow tax-free until it is withdrawn for approved educational use. Note the word ‘approved.’ If your child seems to be the backpacking-through-Europe-is-my-classroom type right out of the womb, you may rethink this type of savings because if it is not withdrawn for education, it will be heavily taxed. But let’s assume your child has some form of formal education in mind, post-high school.

What is this money invested in once it is inside this fund? If you guessed the stock market, you earn 5 points for Gryffindor! Most funds inside of your 529 are stock market funds. That means they are not invested in just a few cherry-picked stocks. They are invested in funds that hold a variety of stocks. We’ll discuss the most preferable type of funds below. The point I want to make here is that your 529 is about as volatile as your 401(k) because that is also heavily invested in the stock market.

529 Secret Tip!

Most people don’t know that they can buy an out-of-state 529 plan. They simply buy the one in their home state that someone tells them to. This can be a costly mistake because some 529s have really high management fees because most people just don’t know any better. But now you do!

You can buy a 529 plan anywhere in the country and not all state’s 529 plans are as great as the next state. We have our 529s in Utah because our wonderful fiduciary pointed out that the Utah plan has very low fees.

I have no stakes in referring you to any one plan but I HIGHLY encourage you to shop around on this website: This will help you compare 529 plans by state, by fee, and by how much risk you can afford. More about that below too.

The thing to note about an out-of-state plan is that the state where you live may or may not allow you to claim your yearly contributions tax-free. This may not be a big deal though. For instance, if your state does NOT allow you to claim your contributions to your 529 tax-free, then you may have to pay tax on what you put in those accounts or tax on the out-of-state earnings. BUT the tax on that money may not be a big drawback if you are paying low fees and the fund performs well. You have to give this some serious thought because if you have chosen a high-performing/low-fee plan, you may be willing to accept current tax trade offs in order to really save some dough in your 529! You have to do the math. I wish I could do it for you but in a blog post like this, I cannot.

But if your state DOES allow you tax-free contributions to an out-of-state plan, you’re golden! Shop around with wild abandon!

So how do you know what your state’s rules are? Ask someone familiar in your state or start here.

How Do I Manage My 529 Investments?

Our 529 plan is invested in a way that is aggressive when the kids are small and gets less aggressive as they approach college age and our risk tolerance lowers. This stands to reason because you can afford some market volatility while the kids are in diapers. You cannot if they are seniors in high school. You can change the level of aggression as they age. Most funds make this pretty clear in your online account but if they don’t, seek help from someone who knows.

How Do I Know About The Fees In My 529?

Now about those investments and fees. Check out this chart about the various fees that the banks charge you to manage the stock-based accounts inside of your 529.


In some cases, they can be as high as 10%. That is too high!!! A 10% management fee is just bullshit, plain and simple and no one should pay it! Look what that would do to your end result!

I think anything over 2% is too much. You simply don’t have to pay that. There are a lot of good plans with low management fees. These plans are mostly invested in Exchange Traded Funds (ETFs) instead of mutual funds, which are cheaper by design.

Can I Change Plans? 

If you already have a plan, you can search for information on and see how it performs. If it isn’t so good, it is not hard to transfer it elsewhere. About as hard as transferring any account. Not fun but not prohibitive.

How Much Can I Contribute To A 529?

The IRS allows up to $14,000 per year in contributions to a 529. This is per child. Each child needs his/her own 529 for his/her own education. Grandparents, friends, and other relatives can also contribute to this fund as long as it does not exceed this limit.

In 2010 the IRS began to allow you to use this money to buy your child education-related equipment like a computer for school but otherwise you have to use it to pay for an accredited educational institution. It can be a vocational school, however, so if your child wants to be an artist or a hair dresser, these schools count.

Final Thoughts

Given that I am about to pop with my 3rd baby, it is not lost on me how much these 529 plans advertise to new parents. These ads, along with the cord blood banking ads, play on our fears of not being able to care for our children properly. They irritate me quite frankly and remind me that both products – while useful in some cases – are highly profitable businesses. Which means that it is up to us as consumers to make the best choices possible and not feed the beasts of predatory products!

So how did I do? Did you get answers or come up with more questions about 529 plans? Let me know!


Disclaimer: I am not a certified financial professional. I just play one on TV. This blog is not to be confused with personal financial advice. It is my attempt to share with you what I have learned on my road to building my own family’s wealth. I hope you enjoy and learn from it!

9 responses to “Tips For Managing Your 529”

  1. Brooke says:

    Thanks Natali! Super helpful! We’ve chosen not to invest in 529s to this point (because of the awful fees and boring performance), but that may change in the future. It’s nice to know that Utah is a good place to start. Thank you, and best of luck with your coming bundle!

    • Good choice Brooke! I’m second guessing having them at all these days too. Sheesh!

      Apologies for a late comment. My daughter was born just 2 days after this comment so I got a little sidetracked. 🙂

  2. Brent says:


    My wife is on me all the time about saving for everything….well, because she is better at it than I am….but anyway….

    My dad paid for my education using money he had stored up in bonds over the course of my life from before my birth till college came around….I graduated with no debt…but I know that return on those puppies won’t be like he had….so this information is a great jumping off point to get things going….

    Hoping #3 is here soon!

  3. Aida Kamber says:

    Thanks for sharing Natalie! I had no idea that you could invest in an out of state fund. It’s very helpful to know the range of fees as well. Thanks for all of your tips and good luck with the new baby. I hope you have a safe and quick delivery!

    • A belated you’re welcome! This comment came across the day I gave birth to my daughter so I was a little preoccupied. But I did want to tell you that I appreciate your comment very much!

  4. Danielle Lozer says:

    Before I had kids, a wise man on a plane told me not to save for college for my future kids. Instead, he said, put that money towards paying off you house. Then, when the kids go to college, you can borrow against the house and get a tax break on the interest.
    What do you make of this advice?

    • Okay let me think about this. Hm. If you borrow against your house, you are eligible for a lower interest rate than you otherwise would with a student loan so in that respect, that is a win. But if you had cash on hand to pay out of pocket and did not need the loan, that would be better. But if we are weighing whether or not to pay down the house and increase equity and pay for college out of the equity so that you can write off the interest, you are correct that this would be a great strategy. Some things to consider though: What if the value of the house plummets in a market correction like so many homes do. Then you’re screwed. I’d like to think that you can manage to do BOTH things: pay down the house and save a little for college. Can you try that and just tip the scale towards the strategy you like the best?

  5. Kate Bowers says:

    I wanted your thoughts about whether it is better to put money towards a down payment for real estate investment vs putting money toward 529.

    • Well you have to weigh your options here. Your 529 will grow very conservatively. Your real estate will more likely give you a better cash return but you have to consider what you do with that cash return. Will you invest it in more property for more cash return, making it more likely you can pay for college out of pocket when the time comes? That is a great plan. Or do you want the safer and more forced investment vehicle? That is also a great option, especially considering the tax breaks for using this money for education. Both are great but you have to consider your goals and needs and habits. Also, consider how old your kids are and how fast or slow you need this investment to grow. We actually elected to fund our 529s aggressively while the kids were tiny. That way these could grow aggressively in the beginning and then slowly as they got older. Now we put far less money after the kids enter grade school and instead funnel that money into real estate investments. Does that help at all?

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