Overall improvements are being made to many 529 college savings plans, but some still clearly outperform their competition, says a new study by Morningstar Inc., which ranked the best and worst plans for the past five years.
The five best 529 college plans-which offer various types of tax advantages-are the Maryland College Investment Plan, Virginia Education Savings Trust, Virginia College America, Illinois Bright Start College Savings Program and Colorado Scholars Choice College Savings Program.
"We've witnessed noteworthy improvements in 529 college savings plans over the past few years," says Marta Norton, Morningstar mutual fund analyst and author of the study. "Overall, costs have come down, many of the poorer plans have improved their fund line-ups considerably, and some ineffective plan administrators have exited the 529 plan management business entirely."
The Illinois plan is a prime example of one that has improved dramatically, partially through the hiring of OppenheimerFunds Inc. to administer the fund, says Morningstar. In general, plans with the lowest fees and the most diversification are the best performers.
According to Morningstar, the five worst savings plans are Ohio Putnam CollegeAdvantage, the two Mississippi TIAA-CREF plans, New York 529 College Savings Program and Nebraska AIM College Savings Plan.
Norton advises investors in states with poorly administered plans to consider other types of savings plans, even ones without the tax advantages of a 529, or shop around other states even if they lose some tax advantages offered to in-state residents. For more information please visit http://www.morningstar.com/goto/Best529Plans.