Exchange traded funds continue to increase in number and popularity, growing to one of the most commonly traded securities on the stock exchange as both institutional and the average retail investor gain greater access to broad or specialized market exposure. Yet many individuals are unfamiliar with ETFs’ inner workings. In this ongoing series, we hope to address your questions and help shed light on the investment vehicle. [What is an ETF? — Part 17: 401(k) Plans]

ETFs are not solely limited to your brokerage investment accounts. Investors saving toward a college education may also begin investing in 529 savings plans that include ETF products.

With the cost of going to college rising, it is important to begin saving toward your child’s education now.

The 529 savings plans are a tax-advantage method for saving toward future college expenses. Investors can establish a college savings fund that pays for a beneficiary’s room, board, mandatory fees, books, computer and tuition. Investments in the savings plan are not subject to federal tax and penalty free as long as the money is used for college expenses. Currently, mutual funds make up the lion share of the college-savings 529 industry. [ETFs Gaining Traction with 529 Plan Providers]

Recently, several states, including Nebraska, Nevada and New York, have begun offering ETFs in their 529 plans as a cheap alternative to clunky mutual funds – mutual fund products come with average annual expense ratios of over 1%, whereas ETFs have an industry average expense of about 0.55%.

ETF providers are breaking into the scene. For instance, iShares came out with its 529 Custom Portfolios Plan and State Street Global Advisors also launched the SSgA Upromise 529 plan.

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