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Morningstar Names Best 529 College-Savings Plans

Most plans are improving, but some still have work to do.

529 college-savings plans are growing up quickly, but like a lot of teenagers, they have some awkward qualities.

These state-based savings plans have made significant strides forward over the past 18 months. Thirty of the nation's 82 529 plans have cut their fees, which is an immediate benefit to shareholders. Also, states have been relatively quick to get rid of unsuccessful investment options within 529 plans. These signs of maturity, however, are offset by a few less-desirable features. Fees at many plans could be lower, for example, and many investment choices fail the best-in-class test.

Morningstar's seventh annual study of 529 college-savings plans is based on months of research into more than 50 of the largest 529 college-savings plans that together represent 94% of the industry's $119 billion of assets. Morningstar's mutual fund analysts studied detailed comparisons of the plans' asset allocations, underlying investments, returns, fees, stewardship practices, and tax incentives. The team also discussed investment strategies with the plans' program managers and talked with the states' representatives to determine how they oversee, market, and administer their 529 plans.