Fidelity Investments says it is slashing maintenance fees on the 529 college savings plans it runs in five states.
Fees on indexed plans will be cut in half, while fees on actively managed and advisor-sold plans will be cut by a third, the firm said. Fidelity manages plans sold in Arizona, California, Delaware, Massachusetts and New Hampshire.
The changes mean a family with $50,000 in an indexed portfolio might now pay $125 a year in fees, instead of $250, assuming the amount in the plan remained unchanged.
The announcement made by Fidelity on Tuesday is likely a move to stay competitive, said Joe Hurley, founder of industry-tracking Web site SavingforCollege.com. He noted that other firms, including Vanguard and TIAA-CREF, also recently lowered fees on their 529 plans.
"States are putting a lot of pressure on firms," Hurley said. "These firms want to keep business and make sure their fees are in line."
All states offer their own 529 plans, each of which have multiple investments options. Families can invest in any state's plans, but there are usually tax benefits to picking one from home. Distributions from 529 savings plans are tax free, but must be used for educational costs such as tuition, books and room and board.
Earlier this year, the Obama administration urged states to make it easier for middle-class families to enroll in 529 savings plans. A report by the Treasury Department found only 5 percent of middle-income families invest in the plans, compared to a third of high-income families.
Fidelity, which is based in Boston, said total fees for its direct-sold indexed portfolios will now range from 0.25 percent to 0.35 percent of assets. Total fees for actively managed plans will now range from 0.59 percent to 1.04 percent of assets.
For advisor-sold plans, Fidelity said the new fees will now range from 0.84 percent to 1.48 percent of plan assets. Some of the fee reductions on actively managed plans will be offset by higher costs related to increased international exposure, Fidelity said.
In addition to the higher maintenance fees, advisor-sold plans usually also require a 5 percent to 6 percent commission on all contributions.