529 College Plans Offerimproved Investments

By Marksjarvis, Gail | Tribune-Review/Pittsburgh Tribune-Review, October 29, 2012 | Go to article overview

529 College Plans Offerimproved Investments


Marksjarvis, Gail, Tribune-Review/Pittsburgh Tribune-Review


The quest by states and mutual fund companies to capture the $179 billion that people are saving for college in 529 plans has led to improved investments and more reasonable fees for college savers.

In a study of the plans offered by states throughout the nation, Morningstar analyst Laura Pavlenko Lutton concluded: "The days of plans being chock-full of poor investments that were really expensive are over."

States have become pickier when evaluating funds they offer because of disasters such as the 38 percent loss in an Illinois' Bright Start Oppenheimer bond fund in 2008.

Despite improvements, there remain significant differences in quality and expenses. Those differences can affect how much money you will have to send a child to college. So if you are starting to save for college, or have been using a 529 plan for a while, it's worth examining your choices. You are entitled to make a move within a 529 plan or to another state once a year.

You don't have to pick a fund offered by the state where you live, although you might miss out on a tax deduction for your contributions if you go elsewhere. You also don't need to invest in a 529 plan offered by a financial adviser. You can go directly to most states, without the help of an adviser; investing on your own usually is cheaper.

Although fees have come down, some are still too high, and Lutton suggests screening for fees that erode performance. Funds with lower fees often perform better than those with higher fees.

Yet Morningstar ranks the T. Rowe Price Alaska and Maryland 529 plans among its top "gold"-rated picks, despite relatively higher fees than its other two favorites, offered by Vanguard in Nevada and Utah.

The T. …

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