Are Higher 529 College Savings Plan Fees Linked to Greater State Tax Incentives?
Author InfoBogan, Vicki Abstract Despite the fact that 529 College Savings Plans have existed for over a decade, there has been limited scholarly attention on investment questions related to this savings vehicle. In some of the first academic literature on this topic, Alexander and Luna (Supplement 2005) identified a surprising relationship between 529 College Savings Plan participation and plan fees. They found a positive relationship between participation rates and fees. While they link this counterintuitive result to plan marketing efforts by brokers, I propose an alternative view. In my data which covers a five year time span, I find no significant relationship between participation rates and fees. However, when investigating the tax incidence with respect to 529 plans, I find a positive relationship between state tax rates and 529 plan fees. This suggests that investment companies could be opportunistically setting fees to usurp the benefits which state governments intended for in
