Monday, January 16, 2012

How Does Your 529 College-Savings Plan Stack Up?

Now that the holidays are well behind us, it’s time to start to saving for college again.
If you resolved to save more consistently for your children’s college education this year, or you’re planning to deposit gifts from grandparents, here’s a handy new resource: recently updated its 529 fee study to reflect fee and expense changes among what are called “direct-sold” 529 plans. Those are the ones that individuals can invest in on their own, rather than through investment advisers.
The study points out the lowest- and highest-cost investment options in each plan.
So-called 529 plans are state-sponsored accounts for college savers in which earnings are tax-free as long as they’re used to pay for qualified higher-education expenses. As of Sept. 30, the 529 industry managed almost $135 billion in assets, up 5% from almost $128 billion at the same time last year, according to Financial Research Corp. in Boston.
Of course, understanding the fees is only part of the picture. You’ll also want to consider performance.
Financial-data firm Morningstar tracks 529 plan performance with an annual ranking. In its latest one, released in late 2011, Plans in six states earned its analysts’ “top” rating, including five from the previous year—Alaska, Maryland, Nevada, Ohio and Virginia—and Utah.
Rhode Island’s Collegeboundfund was the only plan tagged with a “bottom” rating in 2010, but it moved up in 2011 to “below average” after adding low-cost index funds from Vanguard Group (though they are available only to state residents).