Morningstar Top 529 College Savings Plan Rankings 2015

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Investment research firm Morningstar has released their annual 529 College Savings Plans Research Paper and Industry Survey. While the full survey appears restricted to paid premium members, they did release their top-rated plans for 2015. Remember to first consider your state-specific tax benefits that may outweigh other factors. If you don’t have anything compelling available, you can open a 529 plan from any state.

Here are the Gold-rated plans for 2015 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

Here are the consistently top-rated plans from 2010-2015. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2010 through 2015.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)

The trend here is consistency. There was no change in either of the lists above as compared to last year. Utah only missed on out the consistent list because they weren’t top-ranked in 2010.

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term? Is it judged likely to continue?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

A broad recommendation is to simply stick with one of the plans listed above unless your in-state plan is offering significant tax breaks. Many other state plans may have specific investments that will work just fine as well. Here are my personal favorites, and why:

  • The Nevada 529 Plan for its low costs, variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. The Vanguard co-branding is also a sign of positive stewardship.
  • The Utah 529 plan has low costs, includes a nice selection of Vanguard and DFA funds, and is highly customizable for DIY investors. Over the last few years, the Utah plan has also shown a history of passing on future cost savings to clients.

I feel that a trend of consumer-first practices is important as the quality of all 529 plans can change with time. Sure, you can roll over your funds elsewhere, but wouldn’t you rather have your current plan just keep getting better and better?

Comments

  1. Hi Jonathan,

    I am looking at enrolling into a 529 plan. Is there a particular one you prefer in this list?

    Best Regards,
    Karthigan

    • My two preferred are as listed in the bottom – Nevada/Vanguard and Utah UESP. I’d say if you want simplicity and you already have most of your IRA accounts at Vanguard, then go with Nevada. If you like to customize asset allocations and such, Utah is much more flexible in letting you set up your own age-based allocations that change over time.

  2. Jonathan,

    Do you have any advice on saving for college for a minor child that you can’t claim on your taxes? My divorce judgement says their mother gets to claim them. However, I still want to save for them for college. Is there any way to save for them but minimize the pain come tax time? Are 529 plans still a good investment if you can’t claim any of the educational expenses on income taxes?

    • 529 plans still offer tax-deferred and tax-free growth when the withdrawals are used for qualified college expenses (the beneficiary doesn’t have to be related to you, legally or otherwise). The tax-free growoth a 529 plan would help you save more for their college.

  3. Kevin, you might check your state 529 rules. I know in my state anybody can set up a 529 and make a contribution and still get to deduct it (within limits) on their state tax return. Even if they can’t claim the beneficiary as a dependent on their tax returns.

  4. I think the California ScholarShare 529 is also worth a look, although only for the passive options. (Currently rated Silver by Morningstar)
    It’s run by TIAA-CREF and the passive/index option is slightly cheaper than either the Utah or Nevada plans (by a couple of basis points).
    Most of Morningstar’s reservations in the past have been around what goes on in the active options, but the passive plan is rock solid and also includes some real estate allocation for additional diversification.

  5. Why doesn’t the NY 529 get listed in the top plans? I always hear Vanguard fans talk about Nevada and Utah, but why not NY?

    NY uses Vanguard and has even lower fees than Nevada. NY’s total expense ratio is 0.16%, whereas Nevada is 0.19-0.49%. Am I missing something?

    http://www.savingforcollege.com/compare_529_plans/index.php?plan_ids%5B%5D=97&plan_ids%5B%5D=37&mode=Compare&page=compare_plans&plan_type_id=1

    • NY is a Silver plan, so technically it is in the top 11. Expenses aren’t the only criteria that M* uses. From the linked article:

      “Morningstar also upgraded three plans to Silver from Bronze in 2015 thanks to various improvements made by the plans. New York’s 529 College Savings Program previously omitted foreign equities from the age-based and static allocation options, though it lacked a solid investment-based reason for doing so. It addressed that shortcoming in July 2015, adding international stocks and bonds to the mix. The plan uses all Vanguard index options and remains one of the industry’s cheapest direct-sold programs.”

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