What I really came to post about on this thread though was an analysis off fees of Maryland's offering to get the state tax deduction (T-Rowe Price) vs Vanguard without the tax deduction. I started to do some math and thought it was a ripoff. It sounds like some other people have come to the same conclusion. Anyways here's some numbers. Please poke holes in them if you can. I'm trying to help out my brother in law who resides in Maryland as he wants to setup funds for his nephew and niece.

I don't have the details of his income or how much he wants to contribute so I just used some 50K income and a 5K contribution to get some baseline numbers:

I also assumed a 9 year investment period (one kid is 9) and a 15 year period (the other is 3) assuming they go to college at 18 years old.

From the T-Rowe Price funds it seems like Portfolio 2024 (0.82% expense ratio ~60/40 stock bond split adjusted down over time) is the best choice for the 9 year old. And Portfolio 2030 (0.81% expense ratio, ~92.5/7.5 stock bond split adjusted down over time) is the best for the 3 year old. I'll also note that the lowest cost pure bond fund is the U.S. Treasury Money Market Portfolio (at 0.38%) and equities fund is the Global Equity Market Portfolio (0.46%) meaning that for T-Rowe Price, if I can convince my BIL to do his own asset allocation every year, he can save some $.

Using Vanguard's 529 deduction calculator (

https://vanguard.wealthmsi.com/stdc.php), I first plugged in how much Maryland's 529 deduction would net someone with 50K of taxable income. The result is $89/year (over 2 years @2500 deduction a year). So by using T-Rowe's investments you'll save $89*2 = $172 if you invest $5000 with 50K of taxable income.

Running through the scenarios yields the following:

Note 1: as I am focusing on fees, I do not grow the account balance - no contributions, no interest - it remains constant for this exercise). I also handle each kid as an isolated test for simplicity

Note 2: After reading the fine print on the expense ratio, I found it is capped at .80% so I can treat Portfolio 2024 and Portfolio 2030 equally.

T-Rowe Price Portfolio 2024/Portfolio 2030 total cost over time (assuming $5000 initial investment, $10/yr account fee, $89*2 tax benefit and .80% expense ratio):

Years | Year Contribution | Account Balance | T-Rowe Maintence Cost | T-Rowe Tax Benefit | T-Rowe Expense Ratio Cost | Year Cost For T-Rowe | Cumulate Cost T-Rowe |

1 | 5000 | 5000 | 10 | -89 | 40 | -39 | -39 |

2 | 0 | 5000 | 10 | -89 | 40 | -39 | -78 |

3 | 0 | 5000 | 10 | 0 | 40 | 50 | -28 |

4 | 0 | 5000 | 10 | 0 | 40 | 50 | 22 |

5 | 0 | 5000 | 10 | 0 | 40 | 50 | 72 |

6 | 0 | 5000 | 10 | 0 | 40 | 50 | 122 |

7 | 0 | 5000 | 10 | 0 | 40 | 50 | 172 |

8 | 0 | 5000 | 10 | 0 | 40 | 50 | 222 |

9 | 0 | 5000 | 10 | 0 | 40 | 50 | 272 |

10 | 0 | 5000 | 10 | 0 | 40 | 50 | 322 |

11 | 0 | 5000 | 10 | 0 | 40 | 50 | 372 |

12 | 0 | 5000 | 10 | 0 | 40 | 50 | 422 |

13 | 0 | 5000 | 10 | 0 | 40 | 50 | 472 |

14 | 0 | 5000 | 10 | 0 | 40 | 50 | 522 |

15 | 0 | 5000 | 10 | 0 | 40 | 50 | 572 |

Now let's run the same numbers with Vanguard. Vanguard's automatic portfolios aren't exactly the same so I chose the closest ones (note: Vanguard's are a bit more aggressive). I chose the Vanguard Growth Portfolio for the 9 year old (75/25 stock bond split, .17% expense ratio) and the Vanguard Aggressive Growth (100% stocks, .17% expense ratio) for the 3 year old. Vanguard's fee schedule does not have a yearly account fee (other than the expense ratio), but we can't deduct the contributions since we wouldn't be contributing to the Maryland College Fund or whatever.

The calculation is more straightfoward in Vanguard's case. It is simply: .0017 (expense ratio) * balance * the number of years. But I'll break it down anyways to match the T-Rowe Price examples:

Vanguard Growth Portfolio / Vanguard Aggressive Growth Portfolio (assuming $5000 initial investment, $0 account fee, no tax benefit, .17% expense ratio):

Years | Year Contribution | Account Balance Year Cost For Vanguard | Cumulative Cost Vanguard |

1 | 5000 | 5000 | 8.5 | 8.5 |

2 | 0 | 5000 | 8.5 | 17 |

3 | 0 | 5000 | 8.5 | 25.5 |

4 | 0 | 5000 | 8.5 | 34 |

5 | 0 | 5000 | 8.5 | 42.5 |

6 | 0 | 5000 | 8.5 | 51 |

7 | 0 | 5000 | 8.5 | 59.5 |

8 | 0 | 5000 | 8.5 | 68 |

9 | 0 | 5000 | 8.5 | 76.5 |

10 | 0 | 5000 | 8.5 | 85 |

11 | 0 | 5000 | 8.5 | 93.5 |

12 | 0 | 5000 | 8.5 | 102 |

13 | 0 | 5000 | 8.5 | 110.5 |

14 | 0 | 5000 | 8.5 | 119 |

15 | 0 | 5000 | 8.5 | 127.5 |

**In this scenario, after 9 years (in time for the 9-year) old Vanguard saves $272-$76.5=$195.5 over T-Rowe! And in 15 years (in time for the 3 year old) Vanguard costs $572-$127.5 = $444.5 less than T-Rowe!**So the big question is what if we contribute $2500 every year and also get rid of the account fee (through payroll deduction). Is T-Rowe worth it then? What is the crossover point?

T-Rowe Price Portfolio 2024/Portfolio 2030 total cost over time (assuming $2500 investment/yr, $0/yr account fee, $89 tax benefit/yr and .80% expense ratio):

Years | Year Contribution | Account Balance | T-Rowe Maintence Cost | T-Rowe Tax Benefit | T-Rowe Expense Ratio Cost | Year Cost For T-Rowe | Cumulate Cost T-Rowe |

1 | 2500 | 2500 | 0 | -89 | 20 | -69 | -69 |

2 | 2500 | 5000 | 0 | -89 | 40 | -49 | -118 |

3 | 2500 | 7500 | 0 | -89 | 60 | -29 | -147 |

4 | 2500 | 10000 | 0 | -89 | 80 | -9 | -156 |

5 | 2500 | 12500 | 0 | -89 | 100 | 11 | -145 |

6 | 2500 | 15000 | 0 | -89 | 120 | 31 | -114 |

7 | 2500 | 17500 | 0 | -89 | 140 | 51 | -63 |

8 | 2500 | 20000 | 0 | -89 | 160 | 71 | 8 |

9 | 2500 | 22500 | 0 | -89 | 180 | 91 | 99 |

10 | 2500 | 25000 | 0 | -89 | 200 | 111 | 210 |

11 | 2500 | 27500 | 0 | -89 | 220 | 131 | 341 |

12 | 2500 | 30000 | 0 | -89 | 240 | 151 | 492 |

13 | 2500 | 32500 | 0 | -89 | 260 | 171 | 663 |

14 | 2500 | 35000 | 0 | -89 | 280 | 191 | 854 |

15 | 2500 | 37500 | 0 | -89 | 300 | 211 | 1065 |

Vanguard Growth Portfolio / Vanguard Aggressive Growth Portfolio (assuming $2500 investment/yr, $0/yr account fee, no tax benefit, .17% expense ratio):

Years | Year Contribution | Account Balance | Year Cost For Vanguard | Cumulative Cost Vanguard |

1 | 2500 | 2500 | 4.25 | 4.25 |

2 | 2500 | 5000 | 8.5 | 12.75 |

3 | 2500 | 7500 | 12.75 | 25.5 |

4 | 2500 | 10000 | 17 | 42.5 |

5 | 2500 | 12500 | 21.25 | 63.75 |

6 | 2500 | 15000 | 25.5 | 89.25 |

7 | 2500 | 17500 | 29.75 | 119 |

8 | 2500 | 20000 | 34 | 153 |

9 | 2500 | 22500 | 38.25 | 191.25 |

10 | 2500 | 25000 | 42.5 | 233.75 |

11 | 2500 | 27500 | 46.75 | 280.5 |

12 | 2500 | 30000 | 51 | 331.5 |

13 | 2500 | 32500 | 55.25 | 386.75 |

14 | 2500 | 35000 | 59.5 | 446.25 |

15 | 2500 | 37500 | 63.75 | 510 |

**After just 5 years, the expense ratio begins to exceed the tax benefit of the T-Rowe account and after 11 years, Vanguard the cumulative cost of using Vanguard is less than T-Rowe.**Next I'd like to try some other scenarios. What if you do your own asset allocation in the T-Rowe Price account? What if you do it in the Vanguard account? The answer for the Vanguard one is easy: don't. The expense ratios are actually the same or higher if you want to do your own asset allocation. I wouldn't bother. But for the T-Rowe price case, it can make a difference. In my next post I'll walk us through using a mix of "Global Equity Market Portfolio" (mix of global and US stocks) and "Inflation Focused Bond Portfolio" (short term bonds essentially) and rebalance every year as we adjust our risk down (more work but it should save money). The question is will it save enough money to be worth it?