Best 529 College Savings Plan Rankings 2020 – Morningstar

Investment research firm Morningstar has released their annual 529 College Savings Plans gold/silver/bronze medalist ratings for 2020. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored. You choices are pretty much either your in-state plan for the tax benefits, or the best overall plan if you don’t have good in-state perks.

Morningstar changed their methodology slightly for 2020. The two changes that caught my eye were (1) the elimination of “Performance” as a standalone judged category, and the elimination of judging advisor-sold plans primarily against each other. Past performance is not a great predictor of future returns, while all fees are.

Here are the Gold-rated plans for 2020 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

• My529, formerly the Utah Educational Savings Plan
• Michigan Education Savings Program
• Bright Start College Savings, Illinois (Direct-Sold)

Utah My529 and Illinois Bright Start Direct-Sold were both Gold last year as well. California Scholarshare and Virginia Invest529 were Gold last year but downgraded to Silver for 2020.

Here are the consistently top-rated plans from 2011-2020. I’ve been tracking these rankings roughly since my first child was born. The plans below have been rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. The Virginia CollegeAmerica Advisor-Sold plan was removed from the list as it was downgraded to Bronze in 2020. No particular order.

• T. Rowe Price College Savings Plan, Alaska
• Maryland College Investment Plan
• Vanguard 529 College Savings Plan, Nevada
• CollegeAdvantage 529 Savings Plan, Ohio
• My529, formerly the Utah Educational Savings Plan

The “Five Four P” criteria.

• People. Who’s behind the plans? Who are the investment consultants picking the underlying investments?
• Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research?
• Parent. Does the state trustee and its partners put education savers first?
• Price. How are the total fees relative to the competition?

State-specific tax benefits. According to Morningstar, 42% of Americans live in states with no state income tax or state income tax benefit, and 12% receive state income tax benefits regardless of the plan they select. For the rest, remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% on your contributions can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I have recommended these two plans to my friends and family:

• Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
• Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a consistent effort towards passing on future cost savings to clients. They lowered their fees again in 2020. This is the option for folks that enjoy DIY asset allocation (or simply don’t like all the tinkering done within some all-in-one funds). Since I like to DIY, the vast majority of my family’s college savings is in this plan.

Most 529 plans get better over time, but not always. I agree with M* that a consistent history of consumer-first practices is important, and I’ve experienced it with Nevada and Utah. It feels good to see my current plan just keep getting a little better every year.