Assets in 529 plans rose 20 percent in 2013, but their performance continues to lag that of traditional open-end mutual funds, according to Morningstar.
The financial research firm said 529 plans grew to a total of $200 billion in assets, partly due to stock market gains.
However, the performance of 529 plans continues to lag that of traditional open-end mutual funds. This may be due to the costs associated with administration and marketing of 529 plans, which typically have more expensive fees than comparable mutual funds, says Morningstar.
The tax benefits of college savings plans may minimize this performance gap on an after-tax basis, according to the firm.
Eighty-four U.S. college savings plans were evaluated based on multiple factors, such as asset flows by category, assets by state and plan structure.
The study found that advisor-sold and direct-sold plans reached nearly equal market share. Advisor-sold plans had about $98 billion, while direct-sold plans held nearly $102 billion.
Plans diversified among stocks, cash and bonds gained the most new inflows, taking in about $890 million in 2013.
However, two bond categories had net outflows. Withdrawals in U.S. government plans, down $194 million, and intermediate bond plans, down $255 million, may reflect families tapping into the plans for college expenses and concerns about rising interest rates, says Morningstar.
Virginia's CollegeAmerica 529 plan is the nation's largest, with more than $44 billion in assets under management, according to Morningstar.
Morningstars full report can be found here.