Competition and political pressure cut the cost of participating in state-run 529 college-savings plans. By Anne Kates Smith, Executive Editor March 31, 2007 The knock on 529 plans, which let you invest for college tax-free, is that they're too darned expensive. But a spate of dramatic fee cuts by the investment firms that manage the money in 529s is a trend that parents of college-bound kids can applaud. "The competition for running these programs has boiled down to fees, and the market is very competitive," says Joseph Hurley, founder of the Savingforcollege.com Web site. The cuts, measured in fractions of a percentage point, could save you hundreds of dollars over the course of a decade.Last fall, Fidelity lowered the bar for 529 fees when it ended its $20 annual account fee, cut minimum investments to $50 from $1,000, and added low-cost index funds in Arizona, California, Delaware, Massachusetts and New Hampshire. T. Rowe Price killed its $75 enrollment fee for Maryland's plan, trimmed the annual account fee from $30 to $25 (sometimes waived) and cut the fee for running the program from 0.38% of assets to 0.28%, with a commitment to go to 0.25% when assets reach $2 billion. Vanguard cut fees in Iowa, Nevada and New York, reducing costs for savers in the Nevada plan by 0.10 to 0.12 percentage point -- a collective savings of more than $2 million a year. Sponsored Content Swelling balances allow the plans' investment managers to realize economies of scale and pass on the savings to families. Overall, according to Financial Research Corp., fund expense ratios in 529 plans you can join directly have fallen by an average of 43% since 2004. In broker-sold plans, expenses have fallen 19%, on average. Broker-sold 529s that recently cut fees include plans in Wisconsin, managed by Wells Fargo, and in Kansas, run by American Century. Who's next? Keep your eye on Hawaii and Idaho. Pressure from state officials for savings has become intense. In January, Oppenheimer announced an agreement with the outgoing Illinois state treasurer that would reduce 529 fees nearly 40%, making the state's Bright Start plan among the cheapest in the nation. No sooner did a new treasurer assume office days later than negotiations reopened. Word is now that fees in Illinois will drop even further. But low fees aren't your only concern with 529s. Tax breaks, investment options, performance, minimum investments and whether the plan allows contributions from third parties all matter. We think Iowa's plan has the best overall package for people who don't get a tax deduction in their own state.