“Exchange-traded funds, known in part for their rock-bottom expenses, have started to appear on the menus of a few 529 college-savings plans. That may mean lower costs for investors in some cases—but not all,” Jane Hodges Reports From The WSJ.

“So far, most 529 plans that offer ETFs are sold by financial advisers; those typically are more expensive than plans offered directly to investors, because costs are built in or charged separately to compensate the advisers,” Hodges Reports.

“Fans of ETFs—which resemble mutual funds but trade like stocks—also need to consider that the trading flexibility and tax efficiency of ETFs are lost or less valuable within the 529 vehicle, where trading is restricted and income is sheltered from federal tax as long as it is used for qualifying education expenses.  Still, some financial professionals are predicting that more college-savings plans will open their doors to ETFs in the near future despite what some consider to be a less-than-perfect fit,” Hodges Reports.

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