by Harry Sit on December 4, 2014 30 Comments

[Updated on Dec. 4, 2014 with new rates for 2015.]

For the most part, 529 plans offer mutual funds as investment options. After the financial crisis in 2008-2009, many 529 plans added more conservative, guaranteed principal options offered by banks and insurance companies. Because money in 529 plans is typically long term, these guaranteed principal options sometimes offer attractive yields. They can be a better deal than bond mutual funds because they dont have interest rate risk.

These guaranteed principal options are especially good for students who are already in college or about to enter college. When you are going to withdraw the money in a few years, even bond mutual funds can be too risky. For instance, the moderate-risk age-based portfolio for a student age 19 or over in the Vanguard 529 plan (Nevada) lost 3.4% in 2013.

Colorados CollegeInvest Stable Value Plus 529 Plan offers a stable value fund by MetLife. The interest rate resets every year in December. The rate guaranteed through December 31, 2014 is 2.64% after admin fees charged by the Colorado 529 plan. The new rate for 2015 is 3.09% after admin fees.

The stable value fund is only guaranteed by MetLife. MetLife is rated Aa3 by Moodys and AA- by S&P. Although MetLife isnt FDIC, I would be OK with a guarantee by MetLife.

The interest rate offered by the MetLife stable value fund has been relatively stable (pun intended). A Colorado state law about the minimum nonforfeiture rate for annuity contracts might have something to do with it.

You dont have to live in Colorado to use Colorados 529 Plan. You can have more than one 529 plans in different states for the same beneficiary. You can transfer money from one 529 plan to another 529 plan once every rolling 12 months for the same beneficiary if you didnt get a state income tax deduction which requires a claw-back when you transfer out.

22 states either dont have a state income tax, dont offer a tax benefit for 529 plan contributions, or offer a tax benefit whether you use an in-state or out-of-state 529 plan. If you live in these 22 states, you are completely free to use a 529 plan from any state: Alaska, Arizona, California, Delaware, Florida, Hawaii, Kansas, Kentucky, Maine, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, North Carolina, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

If you get a state income tax benefit for your in-state 529 plan contribution, the benefit usually has an upper limit on your contribution. If you are contributing more than that limit, the additional money can still go to a 529 plan from any other state.

If MetLife isnt good enough for you, Virginias CollegeWealth 529 Plan offers FDIC insured savings account through regional bank BB&T. See 529 Plan Savings Account at BB&T: 2% 2.25% APY FDIC Insured .

TIAA-CREF also offers similar stable value options in many 529 plans it runs, albeit at substantially lower interest rates. TIAA-CREF is one of a handful of insurance companies with the AAA rating. The interest rates and the rate expiration dates vary from plan to plan.