Morningstar Top 529 College Savings Plan Rankings 2018
Investment research firm Morningstar has released their annual 529 College Savings Plans analyst ratings for 2018. While the full research paper appears restricted to paid premium members, this is still useful as while there are currently over 60 different 529 plan options nationwide, the majority are mediocre and there is really no reason to put your hard-earned money into them since anyone can invest in any state’s 529 plan.
Here are the Gold-rated plans for 2018 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.
All 4 of these plans were Gold last year as well. There were no new additions or subtractions.
Here are the consistently top-rated plans from 2011-2018. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. These were also the same as last year. No particular order.
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)
My529, formerly the Utah Educational Savings Plan
The “Five P” criteria.
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?
Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.
State-specific tax benefits. Remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).
If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)
My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I would recommend these two plans to my friends and family:
Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a history of passing on future cost savings to clients. This is the option for folks that enjoy DIY asset allocation. Since I like to DIY, I have the majority of my family’s college savings in this plan.
Morningstar offers their own additional insight into the Gold-rated plans. I feel that a consistent history of consumer-first practices is most important. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?
“The editorial content here is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone.”