Investment research firm Morningstar also rates 529 plans in their annual “529 College Savings Plans Research Paper and Industry Survey”. They recently released details about their 2012 results, but I couldn’t find the entire paper (Premium section?). Here are links to their 2010 and 2011 studies [pdf]. They’re long, but include some interesting details for investment geeks.
Morningstar now uses a Gold/Silver/Bronze rating scale for the top plans and Neutral/Negative for the rest. (In 2011, they employed the same methodology but used Top, Above Average, Average, Below Average, and Bottom. Top has basically been broken up into Gold and Silver, and Above Average is now Bronze.) The criteria include five P’s:
- 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? Active or passive, how is it implemented?
- Parent. 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.
Here are the 2012 Gold and Silver-rated Plans which are available directly to the public (complete list):
- T. Rowe Price College Savings Plan, Alaska
- Maryland College Investment Plan
- Utah Educational Savings Plan
- Vanguard 529 College Savings Plan, Nevada
- iShares 529 Plan, Arkansas
- Michigan Education Savings Program
- CollegeAdvantage 529 Savings Plan, Ohio
In comparison with the SavingForCollege rankings, Morningstar does seem to have a greater affinity for T. Rowe Price (which manages the AK and MD plans) and their active management at slightly higher expense ratios (~0.49-0.68% in the age-based and static portfolios).
Primarily interested in low costs? Here are the seven cheapest direct-sold 529 plans as of 2011, ranked by a straight average of total expense ratios:
- Utah Educational Savings Plan (0.24%)
- New York’s Direct 529 Program (0.25%)
- Vanguard 529 College Savings Plan, Nevada (0.30%)
- Michigan Education Savings Program (0.32%)
- College Savings Iowa 529 Plan (0.34%)
- Path2College 529 Plan, Georgia (0.34%)
- CollegeAdvantage 529 Savings Plan, Ohio (0.35%)
For 2011, the average advisor-sold investment option cost 1.47%, while the average direct-sold option charged 0.54%. Again, these are just averages and those interested in a specific investment may find that a lower-ranked plan actually has a lower cost.
As usual, remember to consider your in-state plan first for potential tax advantages. If you don’t have anything compelling available, you can open a 529 plan from any state.