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Top-Rated 529 College Savings Plans Offer Tax-Advantaged Education Funding
If you're looking to save for your child's or grandchild's education, a 529 college savings plan could be an excellent choice. These investment vehicles provide tax-advantaged ways to pay for education costs, including tuition, fees, books, a computer, room and board, and even graduate school or trade school in some states.
Morningstar's Medalist Ratings for 529 plans range from Gold to Negative, with the top plans earning Gold or Silver Medalist ratings for strong investment offerings and stewardship. These ratings consider the entire investment menu, including transition strategies toward conservatism near college age.
Some of the best 529 plans according to Morningstar include my529, T. Rowe Price College Savings Plan, Pennsylvania 529 Investment Plan, U.Fund College Investing Plan, and Bright Start Direct-Sold College Savings.
Illinois' Bright Start Direct-Sold College Savings Plan offers compelling investment options that are also highly cost-effective, with a wide range of high-quality investment options across multiple firms. Utah's my529 plan consistently receives a Gold rating and features a straightforward target-enrollment series, a unique custom option using Vanguard and DFA funds, and topnotch state oversight.
The T. Rowe Price College Savings Plan benefits from a competent and well-resourced team at T. Rowe Price, while Massachusetts' U.Fund College Investing Plan benefits from the skills and resources of a portfolio management team at Fidelity. The Pennsylvania 529 Investment Plan continues to benefit from topnotch state oversight and is set to experience accelerated fee reductions as its assets increase.
529 plans offer an age-based or target-enrollment series, which are set-it-and-leave-it investment options that gradually derisk during the accumulation and savings period. Contributions to a 529 plan are invested in chosen investment options such as equity funds, bond funds, or a portfolio that gradually derisks over the investment period.
Additional fees for 529 investments can include program management fees, state fees, and marketing and distribution fees. Most 529 plans do not have contribution limits, but contributions are subject to the annual gift tax exclusion.
If a beneficiary no longer needs the money in the account, the account owner can name a new qualified beneficiary without incurring federal or state income tax penalties. Qualified beneficiaries are members of the current beneficiary's family, which includes siblings, children, nieces and nephews, their spouses, or a first cousin.
In addition, beneficiaries with an account open for 15 years or more can transfer unused funds to their Roth IRA. A majority of states offer a state income tax benefit if you invest in your state-sponsored plan. Anyone can open a 529 plan and name a beneficiary, typically it's the parents who open a 529 plan for their child.
For detailed, up-to-date lists of the best 529 plans with Morningstar Medalist Ratings, investors generally refer to Morningstar's official website or trusted financial advisory platforms specializing in college savings.
[1] Morningstar, "529 College Savings Plans: What You Need to Know," 2021. [2] Morningstar, "How to Choose a 529 College Savings Plan," 2021.
Engaging in personal-finance matters, investing in a 529 college savings plan is an education-and-self-development strategy for saving funds for a child's or grandchild's future education. In the investment world, these plans offer various options, such as stocks, bonds, and mutual funds, under portfolio management, for financing education costs. To make informed decisions, one can refer to detailed resources like Morningstar's official website or trusted financial advisory platforms for up-to-date lists and recommendations, as seen in guides like "529 College Savings Plans: What You Need to Know" and "How to Choose a 529 College Savings Plan."
