27 plans earn medals from Morningstar analysts.
In an annual review of the largest 529 college-savings plans, Morningstar analysts identified 27 plans that are likely to outperform their peers on a risk-adjusted basis over a full market cycle. These plans earned Gold, Silver, or Bronze Morningstar Analyst Ratings, which are forward-looking, qualitative ratings.
Laura Lutton is director of manager research for fund-of-funds strategies, North America.
The 529 plans earning medals are a diverse group of direct-sold and advisor-sold plans, but all have a strong menu of investment options, solid management, and reasonable fees. The relatively large number of plans earning medals reflects meaningful improvements across the 529 industry in recent years. Very few plans still include options that have performed poorly due to weak management or extremely high fees. As such, only four of the 64 plans rated earned Negative ratings, with 33 plans earning Neutral ratings. Morningstar did not rate 22 of the industry's smallest plans.
Among the medalists, four plans earned a Gold rating, which signals that Morningstar has the highest conviction in the plan's ability to serve college savers well over the long term. Four plans earned Silver ratings. These plans exhibited many industry best practices, though Morningstar has less conviction in their future success. The bulk of the medals were Bronze, awarded to 19 plans; these, too, are likely to outperform the typical 529 plan but aren't as strong as the Gold and Silver plans.
- source: Morningstar Analysts
Among the plans earning Morningstar's highest rating, two, Maryland College Investment Plan
and Alaska's T. Rowe Price College Savings Plan
feature T. Rowe Price's topnotch investments. Morningstar has identified these plans as industry leaders for several years running because they offer high-quality active strategies at a reasonable price. The plans were largely unchanged in the past year, though each plan's single age-based track now features more international equity and real-assets exposure, which should further diversify the plan's returns.
The other two plans earning Gold medals from Morningstar feature passive investments from Vanguard. To be sure, indexing is increasingly common in direct-sold 529 plans like these, but fees vary dramatically from plan to plan. Utah Educational Savings Plan
and The Vanguard 529 College Savings Plan
of Nevada are well-established leaders at keeping costs low. In these plans, college savers have a number of low-cost age-based tracks to choose from that vary their asset allocation based on the savers' risk profiles. A primary difference between these two Gold-rated plans is their respective minimum investment. While Vanguard requires $3,000 to get going in its namesake plan, Utah's offering has no enrollment minimum.
The plans earning Silver medals are all very strong options. Virginia's CollegeAmerica
, the nation's largest 529 plan at $33 billion of assets, is advisor-sold and managed by American Funds. It features the firm's stalwart fund lineup as well as suites of new static-allocation and age-based options. The plan's fees are near the bottom of the advisor-sold universe, which increases the likelihood that the plan will outperform over the long term.