Best And Worst College 529 Plans From Morningstar

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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.

Compare state plans at www.savingforcollege.com, www.collegesavings.org or www.morningstar.com.”Hopefully Morningstar’s review will prompt the New York 529 plan to consider some international exposure otherwise I may have to look into some of the better plans.

Do you contribute to a 529 college-savings plan?

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Published or updated May 30, 2013.

Comments

  1. Mark @ TheLocoMono says:

    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. 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. 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. @ 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 says:

    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. 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.

  7. Janet Hammel says:

    I have 4 accounts in the Ohio 529 Putnam CollegeAdvantage and I would like to transfer to either the Virginia CollegeAmerica or Virginia Education Savings Trust. What do I need to do to transfer? Would there be a penalty from Ohio? I know I can’t take contributions on my tax returns if I switch.
    Thank you

  8. @ Janet – I don’t believe there would be a penalty for moving your account but you should check with the Ohio 529 program first. There could be tax considerations as well. Do you live in Ohio? You may be missing out on tax breaks. I can understand why you would want to move your money. Just make sure you read up on all of the aspects first.

  9. I’ve been investing in the NYS 529 plan since 2001 for our twins. It has been a very disappointing experience to say the least. My plan has averaged 2.38 % return over the life, My wife, who also has accounts in NY519 since 2005 has a negative 2.3 % return. I have to wonder what all those fees add up too? The us markets haven’t helped.

    • The market overall has been hurting that past decade which could be the reason for your low return. I’m not sure fees are what’s causing the return. The NY 529 plan is with Vanguard which generally has low fees. In fact the NY 529 just lowered fees on the account.

      I’m not sure how old your children are but they have plenty of time yet for the 529 to recover. Also, how you allocate your investments can have a lot to do with your return.

  10. For the last 10 years I’ve had two 529 (Virginia savings set to aggressive and NY ) accounts for each or my three kids. I’ve been contributing the same amount to both plans and after 10 years the NY 529 beats hands down my Virginia 529 (Virginia has never recovered well from 2008). Starting this month I’ve reduced my Virginia monthly and increased my NY contributions. I may just dump Virginia.

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