Check Out College Savings Trends for 2014

Lower fees and changes in investment managers are two things 529 plan account holders may see in 2014.

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There's good news for parents investing in the tax-advantaged college investment plans commonly called 529 plans in 2014.

These college investment accounts allow families to save money for what are known as qualified education expenses, including tuition and room and board. Account holders such as parents or grandparents designate a child as the beneficiary, and can change investments in the accounts once per calendar year.

In 2013, families and 529 plan account holders saw increased exemptions for the gift tax and more things that 529 plan savings could pay for. Neither of those are expected to change again this year, but one 529 plan trend from 2013 could continue: reductions in plan fees.

Plans typically charge fees for program management as well as on individual investments. While these fees don't prevent accounts from seeing investment growth, they can diminish profits for families hoping for increases in account value to help pay for college. Luckily, these fees are trending downward.

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"In 2014, I think we will continue to see 529 fees edge down," says Laura Lutton, an analyst with Morningstar, an investment research firm. "Plans keep close tabs on how competitive their fees are, and we saw examples in 2013 of plans cutting fees outside of contract renewal discussions with the program manager. The risk to plans that aren't sharpening their pencils on fees is that they'll look too expensive, just by standing still."

She expects more fees to drop in the next 12 months. Some of the fee changes among investments may happen as a result of plan managers choosing more passive investments, where changes are made based on a financial index instead of a fund manager picking and choosing stocks within a fund, Lutton says.

These plans are cheaper to manage because there is less work involved for fund management, experts say.

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Pennsylvania is a great example of how much fees could drop. According to Pennsylvania State Treasurer Rob McCord, fees will drop in his state by more than 22 percent. Overall, fees have been dropping annually, experts say.

While the market may push fees down, it also might be behind the addition of more options within plans. It was long thought that bonds were safer investments than stock-market based investments, experts say. But even bonds come with risk. Generally, 529 plans contain bond funds, which are funds that contain shares of loan notes to various companies. Some bond funds have dropped in value this year.

"The Barclays U.S. Aggregate Bond Index is in the red for the past year, and I think that will be disappointing to college savers who think of their bond investments as safe investments that won't lose money," Lutton says, referring to an index fund comprised of U.S. bonds many use as a benchmark.

She doesn't know how plans will react yet, but parents need to worry about overreaction. For instance, investing completely in savings accounts could prevent parents from achieving the investment growth they wanted to send their children to college.

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There may be deeper changes ahead in 2014 for account holders in some states. States are reevaluating who's managing their investments, says Betty Lochner, chairwoman of the College Savings Plans Network. Changes in investment managers can occur for a variety of reasons: States could be looking for a manager who finds investments with higher returns, a manager with lower fees or that offers a different mix of investment options for current and future plan holders.

Plan holders in Minnesota, for example, may soon be getting a new plan manager. The state put out a request for a new savings plan manager in late 2013, she says.

Families who have reviewed their accounts, whether or not they are happy or unhappy with plan growth, need to pay close attention to changes in investment management, experts say. Families should call plan customer service numbers and ask about what the change in management will mean to their investment options and fees.