Morningstar’s Top-Ranked 529 Plans

Finding your best-fit 529 plan to save for education can be a daunting exercise, with over 90 plans available. While investors must consider their individual tax situations before making their final decisions, Morningstar’s top-ranked 529 plans are a good place to start. Morningstar currently rates 54 529 plans, representing 94% of the assets in the industry. Of those 54, two plans, Utah’s my529 plan and Pennsylvania’s 529 Investment Plan, receive our top Morningstar Medalist Rating of Gold, reflecting our highest confidence in their ability to provide participants with compelling investment results.

Below, we discuss some of the features that distinguish the two top-ranked 529 plans from their peers.

Morningstar’s Medalist Rating for 529 Plans

Morningstar’s Medalist Rating for 529 plans considers four pillars:

• People
• Process
• Parent
• Price

For each pillar, we look for what we believe are best-in-class industry practices, including:

• Skilled teams with experience managing multi-asset strategies and curating investment menus
• A well-researched approach for target enrollment and age-based options
• A robust process for selecting investments
• The state agency’s ability to provide thoughtful oversight and stewardship
• Low fees for age-based or target-enrollment options

The overall Medalist Rating (Gold, Silver, Bronze, Neutral, Negative) for each plan is calculated from the pillar scores with a 30% weight for People, Process, and Price, and a 10% weight for Parent. Higher-rated plans reflect our analysts’ conviction in the plans’ ability to offer compelling investment options to help investors save for educational expenses.

Top-Ranked 529 Plans: Utah and Pennsylvania

Utah’s my529 and Pennsylvania’s 529 Investment Plan have Morningstar Medalist Ratings of Gold as of May 2024. Each offers well-designed target-enrollment portfolios, which are great investment options for hands-off investors. Target-enrollment portfolios emphasize growing savings further away from a target date and gradually shift their focus to preserving savings closer to that date. Both plans also employ a solid menu of stand-alone options for investors who want to build their own portfolios.

A Low Price rating reflects positively on the plan’s overall rating. The inverse is true for People, Process, and Parent pillars, where a High rating reflects positively on the plan’s overall rating.

Utah: This Top-Ranked 529 Plan Has Something for Everyone

Utah’s my529 has consistently been one of our favorite offerings, setting industry standards on many fronts.

The plan employs a thoughtful and cost-effective design. The target-enrollment portfolios follow a relatively steep glide path, which starts with a 100% allocation to stocks that falls to 10% by enrollment. The team mitigates the market-timing risk with a progressive glide path, meaning that the portfolios shift frequently (quarterly) and gradually out of stocks, instead of making one large move every year or two. This design helps education savers avoid the risk of meaningfully shifting out of equities just after a market dip, when there is the potential to lock in losses. The underlying lineup consists of low-cost index funds that provide broad market exposure. The fees for these portfolios are low, at 0.14%-0.15%.

The team behind my529 boasts topnotch resources. Instead of hiring an investment manager for the plan, the state employs its own well-resourced and experienced investment team. The team also receives support from an investment advisory committee and multiple independent consultants that provide an edge compared with the typical 529 peer. The state’s centralized oversight structure allows for engaged stewardship of the plan, and the state has earnestly continued to reduce fees.

My529 distinguishes itself from peers through customized age-based portfolios. Investors can design their own glide path and select the underlying investments from a well-curated menu of funds that cover broad groups of stocks and bonds. Given the degree of customization for this option, though, it is easy to misuse and is more suitable for experienced investors or those who work with an investment advisor.

Pennsylvania: Exceptional Stewardship From the State Sets This Top-Ranked 529 Apart

Pennsylvania’s 529 Investment Plan offers a simple yet thoughtfully designed investment menu at a low cost. The Pennsylvania Treasury Department’s effective and steadfast advocacy on behalf of its investors puts the plan a notch above peers.

The plan draws from industry behemoth Vanguard’s resources, including its Investment Strategy Group and education savings team, to develop the investment menu and target-enrollment portfolios. Its glide path starts with a 95% exposure to equities that reduces to 18% at enrollment, and the portfolios’ quarterly shifts mitigate market-timing risk. The underlying funds are similar to those in Utah’s target-enrollment portfolios: low-cost, broad-market index funds.

The plan’s 2023 upgrade to Gold resulted partly from the Pennsylvania Treasury Department’s effective oversight. The department’s aggressive negotiations for lower fees and additional fee breakpoints, among others, led to a more positive investor experience. Pennsylvania’s Treasury Department and its consultant Marquette have also demonstrated their investment expertise that add value on top of Vanguard’s.

Your Best Fit May Not Be One of Our Top-Ranked 529 Plans

While these plans exemplify many of what Morningstar considers as best practices, there are many other 529 plans we rate that investors can explore. Depending on personal circumstances (that is, tax situations) and preferences, a thoughtful investor can still settle on a different plan.