Hard to Beat These 2 College Savings Plans
The Utah Educational Savings Plan offers hands-on customization while the Vanguard 529 College Savings Plan works well for less-involved investors.
Janet Yang: Investors should keep a few things in mind when investing in 529 plans. But if you find yourself looking nationwide for a plan--maybe you live in a state without state-specific tax benefits--it's hard to beat the Utah Educational Savings Plan or The Vanguard 529 College Savings Plan.
Morningstar only gives Gold ratings to four of the 63 529 plans that we have under coverage, and these are two of them. They're also both primarily index-based, which means they're generally low-cost and broadly diversified. There are a few differences between the two when you start looking at the details, though. Take the age-based options. Age-based portfolios are popular among 529 investors because they're easy; they automatically rebalance over time, moving from stocks to bonds and cash as beneficiaries move closer to their college age. The Vanguard age-based portfolios are slightly cheaper. They're all priced at 0.17%, which is about 1 to 4 basis points cheaper than Utah's off-the-shelf options. Vanguard's portfolios are also more internationally diversified than Utah's. International equities make up 40% of Vanguard's equity sleeve, but only 30% of Utah's. Utah does set itself apart with its customizable age-based portfolios, though. For more hands-on investors, these allow you to decide the details of your asset allocation. It also lets you pick from a wide breadth of funds and asset classes, including a number of well-regarded options from DFA. This feature is fairly unusual among 529 plans available directly to individual investors.
If you're looking for index-based 529 options, is hard to go wrong with either plan. The Vanguard plan's low fees and international diversification make it a good choice for less-involved investors. Those who want to take a more active role in asset allocation should take a look at Utah's plan.