A favorite tax planning strategy for many families is to contribute to a College Savings Plan. What some donors do is automatically make a contribution to the 529 plan in the state where the recipient resides. While this is convenient, is it the best investment strategy?
Morningstar, a well-known investment research firm located in Illinois, has announced its top 32 College Savings Plans for 2013. Using the Olympics medals standards to rate the 529 plans, Morningstar assigned its Gold-rated plans to the following 4 plans with the state shown in parenthesis:
- T Rowe Price College Savings Plan (AK)
- Maryland College Plan (MD)
- The Vanguard 529 College Savings Plan (NV)
- Utah Educational Savings Plan (UT)
The Silver-rated plans were:
- iShares 529 Plan (AR)
- ScholarShare College Savings Plan (CA)
- Michigan Education Savings Program (OH)
- College America (VA)
While Morningstar analyzes various factors to rate these plans, factors identified included looking at the fees charged by these plans, their asset allocations based on the saver’s risk profile, and the minimum investment required.
Twenty-eight states were Neutral-rated plans, including PA. Morningstar says that these plans are not flawed, but are unlikely to outperform the market during a full market cycle. Morningstar further reported that if you are investing in a Neutral-rating plan without a local tax benefit, you should consider investing in a medals plan. PA does allow a tax deduction for 529 contributions, which the Morningstar rating system does not consider in its rankings. Thus, is it possible that the PA Neutral-rated plan may be a viable alternative to a Bronze-rated plan?
The entire Morningstar article can be found at http://news.morningstar.com/articlenet/article.aspx?id=615151.
Note: Because each individual’s tax situation is different, if you want to learn more about how to save for a child or grandchild’s college education, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation.
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