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Financial Planning > College Planning > Saving for College

Top-Rated 529 College Savings Plans: Savingforcollege.com

By Bernice Napach

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Savingforcollege.com released its list of the top-rated 529 plans based on their flexibility, costs, investment performance and additional economic benefits such as tax incentives. There are 17 plans in its 5-cap list, two each in Colorado, Nebraska and South Carolina.

(Related: 16 Best & Worst 529 Plans of 2016: Morningstar)

Most are sold directly to savers but two are advisor-sold plans: the Nebraska Education Savings Trust, Advisor College Savings Plan and the Future Scholar 529 College Savings Plan (Advisor-sold) plan. Their direct-sold affiliates also made the 5-cap list.

Four of the top-rated 5-cap funds also placed among the top 10 performing 529 funds for the first 12 months through the first quarter, and they are all directly sold to consumers: Smart 529 VW (West Virginia) Direct College Savings Plan, University of Alaska College Savings Plan; Edvest (Wisconsin) and NextGen College Investing Plan – Client Direct Services (Maine). The West Virginia, Alaska, and Maine plans also placed in the top 10 performing funds over five years.

The rankings are based on apples-to-apples comparisons of funds’ allocations among stocks, bonds and short-term instruments that are then averaged to produce a composite percentile ranking.

(Related: 30 Best Paying College Majors: 2017)

Performance is one of several criteria that families should use when choosing a 529 fund, whose earnings and distributions are tax-free so long as the funds are used for education. Fees are another consideration as well as tax treatment. Some plans offer a tax benefit – credit or deduction – for state residents if they invest in that state’s plan; others offer a tax benefit for residents no matter what plan they choose. It’s incumbent on families to do that research, and Savingforcollege.com as well as other websites including cappex.com and morningstar.com, which offer useful comparative research for that purpose.

Fees for 529 plans have been declining, according to another recent study from Savingforcollege.com. The study found that the mean fees for direct-sold plans, which include expense ratios as well as account maintenance investment management fees, fell 3.7% over the past six months. (Fees for advisor-sold plans are more complex and not included in the study but they are disclosed in another part of the website).

The fee study compared the total costs of all direct-sold 529 plans based on a hypothetical investment of $10,000 earning 5% annually over 10 years, and highlighted the lowest-cost and highest-cost investment options for each plan. It includes annual account fees, if any, but some families need to keep in mind that some plans will waive such fees if the plan owner sets up automatic contributions or has high account balances.

Fees and expenses can have a significant impact on a college-savings fund but should not be the only factor families use when selecting a 529 plan, according to savingforcollege.com. Performance, state tax benefits and investment options should also be considered as well as eligibility (some funds are available only to state residents.)

In addition, higher fees don’t necessarily mean poorer performance. The Tributary Small Company portfolio offered through TD Ameritrade has a projected 10-year cost of over $1,768 but its portfolio gained 22.3% over the one-year ended June 30, 2017.

 “Before investing in a 529 plan, you should read the plan’s official program description in its entirety,” according to Savingforcollege.com.

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