FYI: Morningstar updates college savings ratings

0
20

BOSTON (AP) ? If you’re trying to save for your child’s college education, it can be daunting to sort through all the investment options. Then consider all the fees and possible tax breaks, and it becomes all the more confusing. However, there are tools to make the process easier.

A particularly useful one is offered by Morningstar. The company is best known for its research on mutual funds, but it also rates 529 college savings plans. In the latest update to Morningstar’s annual ratings, six plans earned top marks.

BACKGROUND

Section 529 college savings plans enable parents to withdraw money for college expenses free of federal taxes, and are named after the federal tax code that created them in 1997. They’re popular because of the tax benefits they offer, compared with stashing savings in bank accounts or certificates of deposit. Each plan is sponsored by a state that can set its own guidelines.

Investors aren’t limited to investing in their own state’s plan. However there is an incentive because about two-thirds of states extend state tax deductions or credits to residents.

THE PROCESS

Morningstar assesses the best and worst among 58 plans that manage more than 95 percent of the total assets in 529s. The latest ratings update came out last week. Morningstar’s analysts weigh factors including the quality of investment options, investment performance, fund managers’ skills, and costs. The plans are assigned ratings based on a five-level scale.

THE RATINGS

Among the six plans that earned top marks, five achieved that rating last year, with Utah the newcomer this year. Here are the top-ranked plans, in alphabetical order, with the sponsoring state, and the plans’ managers:

? Alaska’s T. Rowe Price College Savings Plan, managed by T. Rowe Price;

? Maryland College Investment Plan, also run by T. Rowe Price;

? Nevada’s The Vanguard 529 Savings Plan, managed by Upromise;

? Ohio’s CollegeAdvantage 529 Savings Plan, with a mix of managers from various companies;

? Utah Educational Savings Plan, managed by the agency of the same name;

? Virginia’s CollegeAmerica, managed by American Funds.

Five of the six plans allow accounts to be opened directly through an investment firm or the state plan administrator. The exception is Virginia’s plan, which is sold through financial advisers, and is the nation’s largest 529 plan.

Morningstar gave “above average” ratings to 15 plans, “average” to 30 plans, and “below average” to seven.

None was assigned a “bottom” rating. Morningstar said that’s because 529 plans have improved. Last year, only Rhode Island’s plan got a “bottom” rating. That state’s CollegeBoundfund plan moved up to “below average” this year. Morningstar cited the plan’s expanded offering of low-cost Vanguard index funds for Rhode Island residents.

DECLINING COSTS

Several plans in states such as Georgia, Nebraska and Oklahoma have recently trimmed fees. Morningstar found that the average expense ratio for assets in 529 plans fell to 0.87 percent from 0.94 percent over a recent 10-month period. Those are the ongoing charges paid for operating the plan, expressed as a percentage of assets.

WHERE TO GO

For a list of Morningstar’s ratings on each of the 58 plans, visit www.tinyurl.com/64wjepr . To access Morningstar’s research paper and industry survey on 529 plans, visit www.tinyurl.com/43qfya4 .