The 529 plan industry, which provides a tax-free savings tool for future education expenses, has made strong improvements on all fronts, including more sophisticated investment approaches, increased state oversight and lower feesover the past dozen years, Hyunmin Kim, a manager research analyst for Morningstar Research Services, wrote in a blog post on Monday.
Yet, some plans stand out, according to Morningstar’s research. In October, analysts reviewed 59 plans, which represent more than 90% of industry assets. Of these, 31 plans earned Morningstar Medalist Ratings of gold, silver or bronze.
Five state plans were rated gold. These offer exceptional state stewardship of investor capital and well-constructed portfolios managed by competent investment teams, Kim wrote.
Thirteen state plans earned silver ratings, includingtwobystates that offered advisor-sold plans. These tend to be moreexpensive, andexperience a higher hurdle for Medalist Ratings, she noted.
Kim said the 13 bronze-rated plans, which may not match higher-rated peers in terms of investment options or investment managers, can still help investors meet their goals, especially when combined with various state tax benefits.
Several of these plans are also quite affordable, she said, which means that investors are likely to take a larger share of the returns realized by their investment portfolios.
The 31 plans that earned Medalist Ratings this year exhibit some combination of the following features:
— A well-researched asset allocation approach
— A robust process for selecting and monitoring underlying investments
— A well-resourced and experienced investment team
— Stable and engaged oversight from the state
— Low fees
Morningstar rates each plan’s investment merits relative to its peers. The Process Pillar rating, weighted at 50%, examines investment quality as well as the rigor and resilience of the underlying investment process.
The People and Parent Pillars are each weighted at 25%, equally highlighting the critical role of experienced management and effective state oversight.
Kim noted that all five gold medalist plans this year earned the same rating in 2024. Likewise, the 13 silver medalists earned this designation last year.
See the gallery for the 18 gold- and silver-rated 529 plans. The plans are listed alphabetically by state, with silver-rated plans listed first.
Images: Chris Nicholls/Touchpoint Markets
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.