Is your 529 plan one of the six that Morningstar just downgraded?

One 529 plan bumped up to gold, joining only two others with that top rating

Oct 25, 2016 @ 1:31 pm

By Liz Skinner

Six college savings plans moved down on Morningstar's annual rankings this year, including West Virginia's adviser-sold plan, which slipped to a negative rating, according to Morningstar's latest report issued on Tuesday. That savings plan has about $1.6 billion in it.

The Chicago-based ratings firm also bumped six section 529 college savings plans up its roster, with only Virginia's direct-sold college savings plan advancing to gold this year. Two other plans currently have a gold rating, the Nevada Vanguard college savings plan and Utah educational savings plan, both direct-sold plans.

“The 529 plan industry as a whole continues to improve,” said Leo Acheson, Morningstar's lead research analyst for 529 plans. “All of the plans that were upgraded cut fees in one way or another, something we've seen across the industry pretty consistently over the years.”

In all, Morningstar ranks 63 plans, representing nearly all of the $240 billion invested in these tax-advantaged college savings vehicles. Other Morningstar “medalists” include 10 plans with a silver ranking and 20 with a bronze.

In addition to the Hartford SMART529 plan in West Virginia, two other plans fall in the negative category, South Dakota's CollegeAccess 529 and Arizona's Ivy Funds InvestEd 529, both adviser-sold plans.

(More: The 5 Ps of picking a 529 college savings plan)

Some plans were downgraded because they didn't cut their fees and ended up looking less competitive compared to the industry as a whole, which did continue to trim costs, Mr. Acheson said.

Other changes include plans in Alaska and Maryland dropping from the highest ranking of gold to silver, and three plans in Arkansas, Georgia and South Carolina moving from bronze to neutral.

2016 Morningstar analyst ratings for 529 college-savings plans
Source: Morningstar

Plans from Arizona, Delaware, Massachusetts, and New Hampshire, advanced this year from neutral to bronze, while the Missouri MOST 529 plan, a direct-sold plan, rose two levels from neutral to silver.

(More: What grade does your state's 529 plan get)

The fact that fees tend to run higher on adviser-sold plans should not disadvantage those plans because Morningstar separates adviser-sold plans and those sold direct to the public when they evaluate the plans, Mr. Acheson said.


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