Comparing the WA GET Plan to the Montana CollegeSure CD
Mint.com ran an interesting post on selecting a 529 plan written by Matthew Amster-Burton a finance-food writer based in WA State. Without surfacing much research, he makes the quick assessment that the Montana 529 CollegeSure CD is a better low-risk investment than the WA GET Plan (and he has even invested in the GET Plan).
I wasn’t too familiar with the Montana CollegeSure CD, so I dug into it a bit. The specifics are:
- For new investors, it returns a minimum return of 2% a year
- Returns a maximum return equivalent to the growth of tuition at the IC500 less 3%.
- The IC500 is a basket of 500 independent colleges.
- This rate was 4.28% from 09-10. It looks like it was roughly 5.5% over the last 5 years
- Over the life of the index (1983-present), it has grown by an annual rate of 5.9%
- Can be purchased with maturities up to 22 years
- FDIC Insured (the current limit is $250K)
So, over the last 5 years, the plan has returned 2-3% a year to investors.
WA GET bid-ask spread aside, the index of the WA plan (UW Tuition) has been growing at 7% a year. This is not uncommon, College Board data shows college tuition growing faster at public institutions than at private colleges.
The FDIC is a more credit-worthy institution than the state of Washington, and the Montana plan isn’t subject to legislative risk in the way that the GET Plan is.
I personally assess the likelihood of both the plan and state of Washington defaulting to be very low (not as low as the risk of the FDIC defaulting), but still low enough that I consider it a wash. I don’t know how to evaluate legislative risk though - that is something endemic to the WA Plan.
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