Investment Firm Announces Best College Savings Plans

Investment research firm Morningstar has named nine college savings plans as the best in the country.

Morningstar uses a gold, silver, and bronze medal approach to its rankings. Gold medals were given to T. Rowe Price College Savings Plan of Alaska, Maryland College Investment Plan, the Vanguard 529 Plan of Nevada and the Utah Educational Savings Plan. Silver medals went to iShares 529 plan of Arkansas, ScholarShare College Savings Plan of California, Michigan Education Savings Program, CollegeAdvantage 529 Savings Plan of Ohio, and CollegeAmerica of Virginia.

"The Gold and Silver medalists represent direct-sold and advisor-sold plans, all of which exhibit strong menus of investment options, solid management, and reasonable fees. The 23 plans awarded Bronze medals have similar characteristics, but Morningstar's analysts have less confidence that they'll outperform their peers on a risk-adjusted basis over a full market cycle," analyst Laura Pavlenko Lutton wrote.

Qualified tuition plans, also known as 529s, are operated by a state, state agency, or educational institution and help families set aside funds for future college costs. The plans, created in 1996, are named after section 529 of the Internal Revenue Code.

There are two types of 529 plans: prepaid tuition plans and college savings plans. All 50 states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsors a prepaid tuition plan. According to the Securities and Exchange Commission, prepaid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board.

Morningstar awarded medals to 32 plans in 2013, up from 27 in 2012. Morningstar's Lutton said the increase in the number of medalist plans reflects "significant improvements to 529 plans."

"Plans that improved their ratings in 2013 increased the likelihood of college savers' success by upgrading the quality of the plans' underlying investments, cutting expenses, and/or improving state tax benefits," she wrote. "Similarly, very few 529 plans still include options that have performed poorly due to weak management or extremely high fees. As such, only four of the 64 plans rated earned Negative ratings, with 28 plans earning Neutral ratings. Morningstar did not rate 21 of the industry's smallest plans."

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