How to choose a 529 package?
Step 1: Assess your state tax benefit.
A majority of states offer a state tax benefit if you invest in your state-sponsored plan. Depending on the amount of your contributions, your income level, and the generosity of the state tax benefit (some states have relatively low limits on how much of your contribution you can deduct), you can choose the your state’s plan, even if it’s not highly rated or has slightly higher fees. Since each family’s situation is different, it may be useful to consult a tax professional to determine the value of this benefit.
Step 2: Use Morningstar to compare plans.
Morningstar rates approximately 60 plans, which represent more than 95% of all assets invested in 529 savings plans.
Of these plans, in 2021, 32 received a recommended rating in the form of a Gold, Silver or Bronze Morningstar Analyst Rating. These Morningstar Medalist plans offer investment options that we believe will outperform and exhibit a combination of the following attractive characteristics:
- A well-documented asset allocation approach.
- A robust process for selecting the underlying investments.
- An appropriate menu of options to meet the needs of investors.
- Strong state and investment manager oversight.
- Minimal fees.
In our Morningstar 529 reports, we highlight the pros and cons of each plan’s investment options. This includes an assessment of the asset manager or investment advisor (such as Vanguard, TIAA-CREF, or Wilshire), the asset allocation process, and the quality of fund options.
Morningstar also provides additional information about each plan, such as details on different investment options, including asset allocation and performance, state tax benefits, and fees.
