An improved 529 plan

Rhode Island’s college-savings 529 plan has changed. How does it look?

In 2015, Rhode Island selected a new investment firm and program administrator to run the state’s college-savings 529 plan. The transition was completed in July 2016. The old plan was plagued by higher fees and poor investment performance, and was not considered user-friendly by investors and financial advisers. Now that the transition is complete, how does the new plan look?

Ascensus-Invesco is now managing the CollegeBound program and fees have dropped by roughly one-third on average. If the account owner or beneficiary is a Rhode Island resident, the program fee, administrative fee and annual account maintenance fee are waived. For non-Rhode Island residents, CollegeBound 529 will charge a program fee of .15 percent, administrative fees of .02 percent and an annual account maintenance fee of $20.

Ascensus-Invesco will continue the CollegeBoundbaby program, which creates a CollegeBound account with $100 for each child born in Rhode Island when the account is set up before the child’s first birthday or adoption. The special Rhode Island tax deduction also remains unchanged.

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The plan now offers two additional ways for clients to save:

n Ugift is an easy, free service that enables family and friends to make the meaningful gift of money into a CollegeBound 529 account.

n Upromise by Sallie Mae is a rewards program that allows you to earn cash back on eligible purchases to help pay for college-education expenses.

Ascensus-Invesco has completely revamped the investment line-up for the plan. It is using a combination of mutual funds and ETFs (exchange-traded funds) to make up the portfolios. As a result, most investment choices are passive, index-based and low cost.

Ascensus-Invesco has also brought needed improvements to its age-based options, asset-allocation approach. The old plan’s age-based options were consistently one of the worst performers of the 529 plans in the U.S. The underlying investment choices in the age-based options are investment funds from Invesco, Vanguard and Blackrock’s iShares.

These portfolios are designed to target a specific risk tolerance for each client. These portfolios do not adjust their allocation policy, unlike the age-based portfolios. The plan uses Vanguard funds in the construction and a combination of U.S. and international stocks and bonds. The Conservative Growth Portfolio allocation strategy is 40 percent stocks and 60 percent bonds. The Moderate Growth Portfolio allocation is 60 percent stocks and 40 percent bonds. Finally, the Growth Portfolio allocates 80 percent to stocks and 20 percent to bonds.

The plan also gives the option to create your own customized allocation mix through eight individual fund choices. The underlying investment managers represent Invesco, Vanguard and Blackrock’s iShares. There are three bond-related investment choices that include short-term bonds and inflation-protected bonds or a broad bond market option. The plan also offers eight stock portfolios to choose from. They cover U.S. large cap, small cap, international and a portfolio that focuses on sustainable investing.

In the current environment where everyone is concerned about funding college education, a 529 plan is a valuable tool to help achieve your goals. Rhode Island’s decision to overhaul and improve the CollegeBound program has been a long-awaited change. The reduction in the fee structure and the improvement in the investment options have made the plan a good option for individuals and financial advisers. •

Matthew Neyland is director of investments for SK Wealth Management.

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