Morningstar has upgraded its ratings for six 529 college savings plans and downgraded ratings for three in its latest annual report on these specialty tax-deferred savings plans.
The report covers 62 of the largest 529 plans — 20 sold by advisors and 42 sold directly to consumers — which altogether account for more than 95% of the $250 billion-plus assets in 529 accounts.
Assets in 529 plans grow tax free and can be withdrawn tax free, for federal purposes, so long as they’re used for qualified education expenses such as tuition. In addition, many states offer tax deductions or credits for 529 contributions, in some cases even for contributions in plans based outside those states.
Four of the six funds that Morningstar upgraded are advisor-sold. Two were upgraded from neutral to bronze, and two were upgraded from negative to neutral: CollegeAccess 529 from South Dakota and The Hartford SMART529 from West Virginia.
The other two upgrades are funds sold directly to consumers: the Bright Start College Savings, upgraded from bronze to gold (skipping the silver rating in between) and the CollegeCounts 529 Fund from Alabama, upgraded from bronze to silver:
Morningstar cited lower fees and improved portfolio construction as the primary reasons for the upgrades. Bright Start, for example, replaced its program manager OppenheimerFunds with Union Bank & Trust and revamped its offerings to include “strong underlying funds,” both passive and active, with index age-based funds charging 0.12% to 0.15%, among the lowest fees in the industry, according to Morningstar analyst Leo Acheson. Bright Start also eliminated a $10 maintenance fee.
One advisor-sold fund and two direct-to-consumer-sold funds were downgraded in the latest Morningstar ratings:
The advisor-sold Franklin Templeton 529 College Savings Plan from New Jersey was downgraded from neutral to negative, while the direct-sold CollegeInvest Direct Portfolio from Colorado was downgraded from bronze to neutral and New York’s 529 Program was downgraded from silver to bronze.