Investment research firm Morningstar rates 529 plans in their annual “529 College Savings Plans Research Paper and Industry Survey”. They recently announced their top plans from the 2013 survey, although it appears the full study and state-specific analyst reports are only available in their paid Premium section. Below, I have listed all of the top-rated plans from each of the 2010-2013 survey years, including which plans were consistently top-rated all four years.
Morningstar now uses a Gold/Silver/Bronze rating scale for the top plans and Neutral/Negative for the rest. (In 2010 and 2011, they employed the same methodology but used Top, Above Average, Average, Below Average, and Bottom. Top is now 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? 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.
Consistently Top-Rated Plans 2010-2013
- 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)
Gold and Silver-Rated Plans 2013 (source)
- T. Rowe Price College Savings Plan, Alaska
- Maryland College Investment Plan
- Vanguard 529 College Savings Plan, Nevada
- Utah Educational Savings Plan
- iShares 529 Plan, Arkansas (Advisor-sold)
- Scholarshare College Savings Plan, California
- Michigan Education Savings Program
- CollegeAdvantage 529 Savings Plan, Ohio
- CollegeAmerica Plan, Virginia (Advisor-sold)
Gold and Silver-Rated Plans 2012 (source)
- 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 (Advisor-sold)
- Michigan Education Savings Program
- CollegeAdvantage 529 Savings Plan, Ohio
- CollegeAmerica Plan, Virginia (Advisor-sold)
Top-Rated Plans 2011 (source)
- CollegeAdvantage 529 Savings Plan, Ohio
- CollegeAmerica Plan, Virginia (Advisor-sold)
- Maryland College Investment Plan
- T. Rowe Price College Savings Plan, Alaska
- Vanguard 529 College Savings Plan, Nevada
- Utah Educational Savings Plan
Top-Rated Plans 2010 (source)
- 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)
As usual, remember to consider your in-state plan first for potential tax advantages that may outweigh other factors. If you don’t have anything compelling available, you can open a 529 plan from any state. In case you’re curious, there is no state tax deduction available to me and I have opened plans with the Utah and Ohio plans (I’ll write more as I get more familiar with them).
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Jonathan, as always, thanks for your helpful information. While Utah’s strong 529 plan has been noted by others, it is nice to see Ohio’s 529 get some praise. For a few years now, it has been one of the best plans out there.
@Brad – You’re very welcome, thanks for reading. I do like Ohio as they offer some of the more rare investment options like a TIPS fund and Wellington Fund at a very reasonable cost. Utah offers neither.
Once they join up with Upromise, I’ll be able to move my $10 that has been sitting there for years over as well. 😉
I was looking over the Ohio plan’s literature. It looks like overall the fees will go up one it joins Upromise. Did you come to the same conclusion? You’ll have to look at two places, including the back of the brochure.
Strange that NY’s 529 plan is not listed. The only expense for out of state folks as well is 0.17%. https://www.nysaves.com/content/investors_outofstate.html
Jonathan,
A question about your thoughts on 529s in general… As you have a newborn and appreciate the power of compounding tax free, I’m sure this is something you are doing with gusto.
That said, I’m torn myself. I have a feeling that 15 years from now, the face of education may be very different. We are starting to see the proliferation of MOOCs and it is pretty obvious that the continued increasing cost of education is going to create problems for the traditional college model. (Not to mention, the fallout of the upcoming student loan crisis around the corner…)
I’m a bit concerned I’ll have a bunch of money in a 529 and that money will go to waste if 4 year university is no longer the gold standard for upper education.
@Jason – Yes it looks like fees are going up 0.02% which is disappointing. If this turns out to be a trend then I’ll be moving my money out. But for now the TIPS exposure is still cheap and I have an old CD paying 5% APY.
@VBee – NY does have some of the lowest costs out there. I don’t recall off the top of my head why they aren’t voted a top plan, although it is rated Bronze.
@Maury – Good question… My opinion based on observations and talking with some professors working with MOOCs, I think that MOOCs going mainstream and becoming legit option for credit-earning and degrees is still very far away. I am fortunate enough to be able to set aside probably enough to cover 50-100% of college based on my projections, and my wife got her education paid for her (I had help too but also 30k in loans) so we are trying to pay it forward.
Also, I’m a conservative investor and will hold a big chunk 50% or so in bonds and TIPS. Given the tax treatment, even getting the deferral plus tax at the end + 10% penalty (by then hopefully “retired” and lower tax bracket) will still get a better after tax return than otherwise. So hopefully not that “wasteful”.
Does anyone know if there are any “self directed” 529 plans that would allow an investor to buy stocks of individual companies in a 529?
Utah age based plan include lots of Vanguard fund. Why don’t you open 529 plan from Vanguard directly?
I think because Utah’s expense is slightly lower via UESP than opening it with Vanguard directly (aka Nevada).
Oh and Vanguard 529 requires $3000 min investment, while UESP (i believe) is just $25
I’ve been looking at Utah and Nevada’s plans – both invest in Vanguard funds. Just curious what led you to choose UT over NV? The fees look similar so I’m trying to distinguish the two.
What are you thoughts on the age-based options? What investment option(s) are you using?