Savingforcollege.com has just released its rankings of 529 Savings Plans based on average investment returns over one, three, five and 10-year periods ended June 30. Rankings are available for plans sold directly to consumers and through brokers and RIAs.
The rankings are composites based on the average performance score in seven allocation categories: 100%, 80%, 60%, 40% and 20% equities with the remaining allocation in bonds; 100% bonds and 100% short-term.
The scores of direct-sold plans are generally better than those sold through brokers and RIAs, due to lower fees, but some advisor and RIA-sold plans may have more investment choices, according to Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com.
(Related: 15 Lowest Cost 529 College Savings Plans)
Investment performance is just one of several factors families should consider when choosing among 529 plans. Other considerations include plan fees, investment options and tax benefits.
Three dozen states offer a state income tax deduction or state income tax credit on contributions to a 529 plan, but most require residents to use their home state plan. Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania are exceptions, allowing residents to claim a state tax deduction or credit for contributions to any 529 plan.
There is no federal tax deduction for 529 plan contributions, but plan savings grow tax-free and distributions are tax free so long as they’re used for qualified educational expenses. Starting this year, 529 distributions, which traditionally have been used to pay for college, can also be used to finance private school education from kindergarten through Grade 12. Some state income tax deductions available for college savings, however, may not be available for K-12 contributions.
Following are the leading 529 plans sold directly to investors, each ranked among the top 10 for three and five-year performance — time periods that Kantrowitz recommends for choosing among funds. “One-year rankings are much more volatile from one quarter to the next, and not every plan has been around for 10 years.”
Since we included only plans that ranked in the top 10 during two different time periods, some plans that earned a high rating in only one of those periods are not included in our list. The plans are presented in order of their three-year rankings, starting with the lower rankings first.
— Check out Top 10 Colleges With Best Financial Aid Packages: Princeton Review on ThinkAdvisor.