The 529 List

Morningstar, Inc. announced its fifth annual study of the best and worst 529 college savings plans. The study is based on an evaluation of the plans’ diversification, fees, flexibility, and the quality of the underlying funds. The managers, strategies, and stewardship of the underlying funds is also considered in making the evaluations.

“We’ve witnessed noteworthy improvements in 529 college savings plans over the past few years,” said Marta Norton, Morningstar mutual fund analyst and author of the study, in a statement. “Overall, costs have come down, many of the poorer plans have improved their fund lineups considerably, and some ineffective plan administrators have exited the 529 plan management business entirely.”

Illinois Bright Start College Savings Program has made major improvements over the past year, according to Morningstar. Hiring OppenheimerFunds, Inc. as the plan’s administrator brought lower fees and more diverse investment options. Two of Morningstar’s favorite plans–Virginia’s Education Savings Trust and College America–were also chosen for their low fees and diversification. Additionally, both the College America and Colorado’s Scholars Choice are broker-sold and have earned spots on the best list two years in a row.

As for Morningstar’s list of the worst 529 plans, many new names appear this year. Putnam CollegeAdvantage, Ohio’s broker-sold plan was placed because of its poor fund performance and high manager turnover, according to Morningstar. Mississippi debuts on the worst list with its two 529 plans–Mississippi TIAA-CREF Affordable College Savings Program and Mississippi TIAA-CREF Affordable College Savings Advisor Program. TIAA-CREF charges high fees for both plans, and although the advisor-sold plan offers more investment options than its direct-sold counterpart, neither offers investors many choices or much asset class exposure. New York’s 529 College Savings Program is also new to the worst list, for its lack of diversification–investors don’t have international exposure, which means missed gains in foreign markets and no protection in a U.S. market downturn. Finally, Nebraska AIM College Savings Plan makes a third consecutive appearance on Morningstar’s worst list. “Although the state made some changes to its plan last year, it remains too expensive compared to its peers,” Morningstar explained.

Morningstar’s Best 529 College Savings Plans

Maryland College Investment Plan–T. Rowe Price

Virginia Education Savings Trust–VA College Savings Plan Board

Virginia College America–American Funds