Morningstar’s manager research analysts this week identified the 529 education savings plans they consider best in class in 2021, based on their assessment of each plan’s investment merits compared with its peers.
This year, 529 education savings assets reached $437 billion in August. The analysts reviewed 62 plans that represent 97% of those assets, and recommended a rating of Gold, Silver or Bronze for 32 of them.
Morningstar streamlined its framework for rating 529 plans last year.
The 2021 medalist plans offer investment options that Morningstar analysts expect will collectively outperform and exhibit some combination of these attractive features:
- Well-researched asset allocation approach.
- Robust process for selecting underlying investments.
- Appropriate menu of options to meet investor needs.
- Strong oversight from the state and the investment manager.
- Minimal fees.
Families invested in these 529 plans, Morningstar said, should be well positioned for the future.
As for the other plans in the assessment, seven earned a Negative rating. These exhibited major structural flaws, such as a subpar asset-allocation approach or excessively high fees. And relative to an ever-evolving landscape that continues to raise the industry standard, these plans are failing to keep pace.
“Education savers can find better plans elsewhere,” Morningstar said.
Twenty-three 529 plans received a Neutral rating from Morningstar analysts. Although the firm does not recommend these plans, it said they may be worth a second look for residents who qualify for additional benefits such as state income tax breaks, which do not factor into Morningstar’s ratings.
It noted that education savers are not required to invest in their state’s plan, but said residents of a state with a Neutral-rated plan should determine any tax incentives they could receive from their state before deciding to look elsewhere.
See the gallery for the best-in-class 529 college savings plans for 2021.
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