Exchange-traded funds are gaining wide acceptance with investors, often serving as more tax-efficient and cheaper alternatives to actively managed mutual funds. As such, ETFs are increasingly being included in 529 college-savings plans. Sixteen plans now include at least one ETF option, up from just a handful a few years ago.
The plans are adding ETFs for a variety of reasons, often with a goal of cutting costs, attracting assets, or outperforming actively managed competitors. While the plan sponsors have high hopes these relatively new investments will attract interest from investors, college savers seem less certain. Arkansas, one of the first states to start using ETFs in its plan, has struggled to attract assets to its iShares 529 plan. And while some states are busy launching new ETF-based lineups to market to registered investment advisors, it's unclear whether RIAs will be willing to switch assets from their current plan to an unproven option. Let's take a look at how these investments affect college savers and which plans are getting into the ETF action.