Ever year, Morningstar ranks the best performing 529 Plans. Here’s a look at the best and the worst of 2008. Keep in mind that results will vary each year, so while one state’s investment portfolio might be up in 2008, it could very well be down in 2009. That’s why you should follow the rules of thumb first!
To pick its top (and bottom) funds, Morningstar uses a variety of criteria, including portfolio diversification, fund quality, fees and flexibility. All of its top picks were well-rounded funds that don’t rely too heavily on any one area of the market. The name of the primary investment house is listed in parenthesis after the plan name.
Best Direct-Sold 529 Plans of 2008
- Alaska T. Rowe Price College (T. Rowe Price)
- Michigan Education (TIAA-Cref)
- Utah Educational (Vanguard)
Utah’s Plan was singled out for being a leader in low costs, charging only .25%. Morningstar also like Alaska and Michigan’s low-fee plans, which despite their nominal costs offered a lot of management value.
Best Broker-Sold 529 Plans of 2008
- Virginia CollegeAmerica (American)
- Colorado Scholars Choice College (Smith Barney)
- Kansas Learning Quest Education (American Century)
Virginia’s plan has access between 21 American funds, allowing brokers to individually craft portfolios to investors’ needs — plus fees are relatively low. Colorado also offers strong fund choices coupled with moderate expenses, and Kansas’ plan earned high marks for offering three investment tracks — conservative, moderate and aggressive, each with seven aged-based portfolios.
Worst 529-Plans of 2008
- Alabama (Van Kampen)
- Arizona (Waddell & Reed)
- Maine (Merrill Lynch)
- Tennessee (TIAA-CREF)
- Wyoming (Merrill Lynch)
Arizona and Wyoming were among the most expensive 529 Plans on the market. Morningstar even called Wyoming’s 0.95% annualized program management fee “obscene.” Neither Alabama nor Tennessee offered meaningful tax breaks, which, when combined with “sub-par” performance and high fees, makes them losers. Maine does offer a matching grant program (up to $200 annually for families earning less than $52,500), but still made the “worst” list since management fees are high and performance was weak.
If you want to compare fund performance over one-, three- and five-year spans, check out SavingforCollege.com’s 2008 Plan Performance Rankings. Keep in mind, however, that performance alone should not determine which 529 Plan you pick, especially in light of the relatively short track record for 529s and the abysmal recent losses on Wall Street.
