Morningstar 529 Plan Ratings

Investment analyst Morningstar released their annual rating of 529 plans this week. Morningstar rates 529 plans on the same 5 criteria it uses in its mutual fund ratings:

  • People–Are the managers and researchers directing the plan’s investments skilled and well-supported?
  • Process–Are the strategies sensible and are past successes likely to be repeated? Are the asset-allocation and fund selection for the age-based options based on solid research and implemented well?
  • Parent–Is the program manager a good caretaker of college savers’ capital? Is the state managing the plan professionally?
  • Performance–Has the plan delivered strong risk-adjusted performance, and is it likely to continue?
  • Price–Are the investment options a good value?

The top ratings are “medalists”– gold, silver and bronze. Others are “neutral;” the fifth category is “negative.”

Only 4 plans received Gold ratings:

  • Maryland College Investment Plan
  • Alaska’s T Rowe Price College Savings Plan
  • Nevada’s Vanguard 529 College Savings Plan
  • Utah Educational Savings Plan

These plans are considered by Morningstar’s analysts to be “the most appealing to college savers, with reasonable fees, strong investment options, and capable oversight.”

Plans receiving negative ratings were South Dakota’s CollegeAccess 529 (“egregious fees”), Arizona’s IvyFunds InvestEd 529 Plan (“Elsewhere, college savers can find plenty of stronger, more stable, and less-expensive options to choose from”), and Kansas’ Schwab 529 College Savings Plan (“some of the most expensive options among direct-sold plans”).

Oregon’s plan received a Neutral rating. Morningstar describes Neutral as “not seriously flawed, but in Morningstar’s view, they’re unlikely to outperform over a full market cycle. College savers who choose a Neutral-rated plan should expect returns near their peer-group norms over the long term–a reasonable outcome.” Oregon’s tax break for contributions helps make the plan a more reasonable option for in-state savers.

More details on the ratings, other plans, and Morningstar’s methodology here.

And just a reminder: You can invest in any state’s 529 plan, and you can pay for any college with that investment.

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