I’ve written at various times in the past about 529 plans as a college savings vehicle. Well, earlier this month Morningstar released the results of their annual survey of the available plans.
They rated 64 plans, ultimately identifying 27 “that are likely to outperform their peers on a risk-adjusted basis over a full market cycle.” Alongside these were 33 plans with a “neutral” rating and 4 that received a “negative” rating.
All plans were rated based on five factors, including:
- People – Are the managers and researchers directing the plan’s investments skilled and well-supported?
- Process – Are the strategies sensible and are past successes likely to be repeated? Are the asset-allocation and fund selection for the age-based options based on solid research and implemented well?
- Parent – Is the program manager a good caretaker of college savers’ capital? Is the state managing the plan professionally?
- Performance – Has the plan delivered strong risk-adjusted performance, and is it likely to continue?
- Price – Are the investment options a good value? Do state tax benefits defray costs?
They further split the top 27 plans into Gold, Silver, and Bronze-rated plans.
The Gold plans included:
- Alaska – T. Rowe Price College Savings Plan
- Maryland – Maryland College Investment Plan
- Utah – Utah Educational Savings Plan
- Nevada – The Vanguard 529 College Savings Plan
The Silver plans included:
- Arkansas – iShares 529 Plan
- Michigan – Michigan Education Savings Program
- Ohio – CollegeAdvantage 529 Savings Plan
- Virginia – CollegeAmerica
And finally, the Bronze plans included:
- Alabama – CollegeCounts Direct 529 Fund
- California – ScholarShare College Savings Plan
- Colorado – CollegeInvest Direct Portfolio
- Colorado – Scholars Choice College Savings Program
- Connecticut – Connecticut Higher Education Trust
- Georgia – Path2College 529 Plan
- Iowa – College Savings Iowa 529 Plan
- Illinois – Bright Directions College Savings Program
- Illinois – Bright Start College Savings (Direct)
- Indiana – CollegeChoice 529 Direct Savings Plan
- Indiana – CollegeChoice Advisor 529 Savings Plan
- Kansas – LearningQuest 529 Plan (Direct)
- North Carolina – National College Savings Plan
- Nevada – USAA College Savings Plan
- New York – New York’s 529 Program (Direct)
- Oregon – MFS 529 Savings Plan
- South Carolina – Future Scholar 529 (Advisor)
- South Carolina – Future Scholar 529 (Direct)
- Virginia – Virginia Education Savings Trust
For starters, given the central importance of costs when investing, I would personally focus first on finding the lowest cost plans. Within the Gold classification, these include Utah and Nevada, which are both in the 0.30% or less range.
I would also suggest checking our the tax advantages associated with your state’s plan. While you can (for the most part) invest in any 529 plan regardless of where you live, residents of the sponsoring state often get a tax break. Just keep in mind that tax deductible contributions to a crappy plan may be worse than non-deductible contributions to a better plan.
Oh, and for the record, the plans with the negative ratings included the Kansas Schwab 529 College Savings Plan, the Minnesota College Savings Plan, and the Rhode Island CollegeBound Funds (both the direct and advisor-sold versions). For the most part, these plans were marked down due to high fees.
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