Morningstar Inc. has updated its rankings of the country's largest 529 college savings plans, giving its top rating to plans offered by four states: Alaska, Maryland, Nevada and Utah.
Morningstar, a provider of investment research, is best known for its rating of mutual funds. But it also tracks 529 plans, which are state-sponsored plans named for the tax code that created them. Money in the plans grows tax free, and stays that way as long as it's used for educational expenses when you withdraw it. Many states also give tax breaks for money saved in the plans. (Families aren't restricted to investing in the plan in the state where they live.)
Morningstar rated 64 plans representing 95 percent of assets held in the plans. Factors that it said it used in the rankings included the plan's strategy and investment process; the plan's risk-adjusted performance; the skill of the plan's manager; the practices of the plans administrator and parent firm; and the fees in volved in managing the plans.
Over the last year, many plans have showed a trend toward better-quality investments and lower fees, said Laura Pavlenko Lutton, who oversees Morningstar's 529 Ratings.
Twenty-seven of the plans were given medal rankings (gold, silver and bronze) and are “likely to outperform their peers, based on Morningstar's analysis. But just four plans were given a “gold†rating, meaning they were “highly regarded†by Morningstar analysts. “Over all, these plans stand out as best of breed for their ability to help college savers meet their goals,†the company explained in a statement.
The gold star plans went to these plans:
- Alaska's T. Rowe Price College Savings Plan, managed by T. Rowe Price;
- Maryland College Investment Plan, managed by T. Rowe Price;
- Nevada's The Vanguard 529 Savings Plan, managed by Upromise Investments; and
- Utah Educational Savings Plan, manage d by the agency of the same name.
Four more plans were rated silver, and 19 were rated bronze.
A “neutral†rating means the analysts don't think the plans are likely to deliver “standout†returns, but also that they're unlikely to significantly under-perform. Most plans - 33 of them - fell into this category.
And these four plans were rated negative because of poor-quality investments or high fees:
- Kansas' Schwab 529 College Savings Plan, managed by American Century Investment Management;
- Minnesota's College Savings Plan, managed by TIAA Tuition Financing;
- Rhode Island's CollegeBoundfund (Advisor-sold), managed by AllianceBernstein; and
- Rhode Island's CollegeBoundfund (Direct-sold), managed by AllianceBernstein.
More details on the plans and their rankings are available on Morningstar.com's 529 plan Web site, but a subscription is required.
Are you surprised by your 529 plan's Morningstar rating? What has been your experience with your 529 plan?
