Last year, when the Oregon College Savings Plan got a major face lift (after Strong Funds got the boot over the fund trading scandal, that is), it seemed that the best college savings option for Oregon physicians might indeed be the Oregon College Savings Plan. Once the Oregon 529 plan adopted the Vanguard Funds, I breathed a huge sigh of relief since my kids' money was in that old Strong Funds lineup, too. The only way to get the $180 Oregon state tax break is to put money (at least $2000) into the Oregon plan.
Now that many Oregon physicians are beginning to use Oregon 529 plans as an asset protection tool, we're beginning to see mongo balances in these plan accounts. So I asked myself, "Is Oregon's 529 plan the best for large plan balances, particularly doctors in Oregon?"
I'm a fan of Vanguard funds. And if you like Vanguard funds and you want a 529 plan with Vanguard-laden choices, then you'll love the Utah plan, which is Vanguard's chosen vehicle for deploying their index lineup in to the 529 war. At the outset, it would be easy to look at both the Oregon 529 and the Utah 529 and say, "Hey, they both use Vanguard index funds, so they're both going to get the same performance, and they're both going to have pretty much the same fees." But that would only be half right.
According to Utah's fee structure infosheet, the years-to-college portfolio (Option 7) has a maximum fund expense ratio of about 0.11% (or $11 per $10,000 of assets). A similarly weighted selection of the Vanguard index funds offered through the Oregon 529 plan would have an expense ratio of about 36 basis points (0.36%, or $36 per $10,000). (It seems the Utah 529 plan is using "institutional" class shares while the Oregon 529 plan is using retail shares of the Vanguard funds.)
So that's a difference of merely $25/year per $10,000. Big deal, right?
Both Utah and Oregon levy about 0.25% in admin fees on top of the fund operating expenses, but Utah caps this fee at $25 per year while Oregon has no cap.
So an Oregon physician who has $100,000 in her Oregon 529 plan pays $250/year in admin fees plus $360/year in fund fees, or $610/year. Subtract the $180 tax credit and the fees come to $430/year. But an Oregon physician who stashes that same $100K in the Utah plan pays just $135 in fees (that's 0.11% of $100K + $25 + $0 tax credit). Now the difference is beginning to add up, and in fact it's about $295.
So where's the breakeven for funding the Oregon 529 vs. the Utah 529 plan?
Oregon physicians who stash at least $41K annually (3500/mo), will likely be better off with the Utah 529 plan. To put it in perspective, $41K is about the right annual contribution for sending twin two-year-olds to an Ivy League school for four years. Doctors that are sending their kids to an Oregon college or other public school might be better off with the Oregon plan.
Of course, doctors who are not actively funding their plans will save investment-related expenses by parking their 529 plans in Utah, since the $180 tax credit is only available on annual contributions.
A decent approach for doctors who don't mind a little extra paperwork (though I've never met one who described himself in this manner), would be to fund the Oregon plan for the first $2K every year (to get the maximum tax credit), then fund the Utah plan for the balance of that year's contribution.
UPDATE: An estate planning attorney tells me that the Oregon College Savings Plan may yield protection from creditors for doctors who live in Oregon, but plans from other states may not provide the same level of protection for Oregon-based physicians.