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| > Investing > College Savings Educator |
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| The Best and Worst 529 Savings Plans |
| by
Dan McNeela
| 02-27-04 |
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Nearly every state now has a 529 savings plan, so investors face a huge array of options when it comes to saving for college. The plans are quickly gaining popularity because of their high contribution limits and their federal tax-exempt status when withdrawals are used to pay for college.
The simplest, though perhaps not the wisest, solution for many is to stick with the 529 plan sponsored by their home state. About half of 529 plans offer in-state residents incentives, so it's worth finding out what extra goodies are available before leaving home.
That said, investors are by no means limited to their home-state plan. If their state's plan is lousy, it pays to do some comparison shopping. That goes double if their state has a low or no income tax.
To help in that process, we've identified some of the best and worst 529 plans being offered. Investors whose state plan shows up on our "worst" list might be best served by looking elsewhere. Folks looking for the top options regardless of in-state incentives should give a close look to our "best" list.
We built our lists around the factors that are crucial to a successful college savings plan: costs, quality of underlying investments, flexibility of investment options, and the fund company's record of treating shareholders well
The Best
| The Five Best 529 Plans |
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| Name of Plan |
Primary Fund Provider |
Asset-Based Costs |
Asset-Based Range (%) |
Quality of Options |
Flexibility |
Shareholder Friendliness |
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| Utah Educational Savings Plan Trust |
Vanguard |
Low |
0-0.44 |
Excellent |
Good |
Excellent |
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| Nevada Vanguard 529 College Savings Plan |
Vanguard |
Low |
0.65-0.85 |
Excellent |
Excellent |
Excellent |
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| Virginia CollegeAmerica |
American |
Below Avg. |
0.67-1.47* |
Excellent |
Excellent |
Excellent |
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| Michigan Education Savings Program |
TIAA-CREF |
Low |
0.65 |
Good |
Fair |
Good |
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| Alaska T. Rowe Price College Savings Plan |
T. Rowe Price |
Below Avg. |
0.65-1.27 |
Excellent |
Good |
Excellent |
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| *Cost for class A shares, not including front-end load. |
Truth be told, our list of the five best 529 savings plans could have started and ended with Vanguard-focused plans. Five state plans (Utah, New York, Iowa, Nevada, and Virginia) use Vanguard as their primary investment manager. Each plan has Vanguard's trademark low costs, which stem largely from its reliance on index funds. Those cheap index funds provide the diversification and consistency that are hallmarks of a solid savings plan.
The Vanguard plans don't skimp on the flexibility either. Most offer multiple investment options that automatically shift from aggressive to conservative as beneficiaries near college age, as well as static options that maintain a constant allocation between stocks and bonds. Finally, Vanguard's reputation for treating shareholders well is second to none in the industry.
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| Send questions and comments about this article to advisorquest@morningstar.com. |
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