Personal Finance | Best And Worst College 529 Plans From Morningstar

Morningstar has released their picks for the top five and worst five 529 college-savings plans. To make their choices, Morningstar “focused on diversification, fees, flexibility, and the underlying funds.”

Here are the top five:

- Illinois Bright Start College Savings Program
- Maryland College Investment Plan
- Virginia Education Savings Trust
-Virginia CollegeAmerica 529 Savings Plan (broker sold)
- Colorado Scholars Choice Savings Program (broker sold)

The worst five:

- Ohio Putnam CollegeAdvantage (broker sold)
- Mississippi Affordable College Savings Program
- Mississippi Affordable College Savings Advisor Program (broker sold)
- New York 529 College Savings Program
- Nebraska AIM College Savings Plan (broker sold)

I’m a little concerned that New York’s plan is considered one of the worst. Not only do I have two funds under the plan (one for each child) I also said recently that it’s a good plan. The main criticism from Morningstar is that the plan doesn’t have any exposure to international funds so it’s been missing out on international gains and it’s not hedged against US economy downturns. Other wise Morningstar says it’s moderately priced and they like that it’s made up of Vanguard index funds.

Many people, like myself, contribute to their own state’s plans since it’s likely they get a tax break. But depending on the plan and state you may be better off contributing to another state’s plan.

The Wall Street Journal suggests the following when considering a 529 plan:

“• When shopping for a 529 plan, you should consider costs, investment options and asset-allocation strategies.

• Weigh any tax advantages of investing in an in-state plan against the plan’s total costs.

• Look for annual asset-based fees of less than 1% for direct-sold plans and less than about 1.3% for broker-sold plans.

6 Responses to “Best And Worst College 529 Plans From Morningstar”

1. Mark @ TheLocoMono (2 comments) on April 21st, 2008 9:43 pm

   I saw the same article. I thought it was interesting about NY too considering that’s where Wall Street is and I would think NY knows a little better about managing college funds.

   BTW, great job with the new theme.

2. ffb (219 comments) on April 22nd, 2008 1:21 pm

   The New York plan had been rated higher in previous years. It’s really the lack of international exposure that’s hurting it. As I mentioned, I hope this makes the NY plan realize they need to update a bit. For the immediate future I’ll at least enjoy the immediate tax return I get form the plan.

3. hank (44 comments) on April 25th, 2008 11:12 pm

   I’ve seen the Illinois plan on the top of a few sites - must be a hot one… I’m going to have to look a bit deeper on this one…

4. ffb (219 comments) on April 28th, 2008 9:57 am

   @ Hank - Let us know what you find. For the moment I’m sticking with NY but if there’s a plan that much better then I’ll have to think about opening a couple of new plans.

5. ideal4investors (1 comments) on May 1st, 2008 7:25 pm

   I read the problem with most of these plans is that the fees are so high. I used to live in Virginia and I know their fees were low and that’s why there are always on the “top” lists.

6. ffb (219 comments) on May 5th, 2008 11:04 am

   Fees are an important aspect to look at. What’s the point of good returns if they are eaten up by fees?

   Thanks for the comment.

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