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Kathy Panagopouloskathy.panagopoulos@morningstar.com
Morningstar Announces Best and Worst 529 College Savings Plans: Morningstar FundInvestor Annual Study Shows Gain in Popularity and Assets, Drop in Costs

CHICAGO, Feb. 7, 2006 – Nearly every state offers 529 college savings plans, and as these plans continue to grow in popularity, costs continue to drop in a number of plans, according to Morningstar’s third annual study on the best and worst 529 college savings plans. 

The annual study appears in the February 2006 issue of Morningstar(R) FundInvestor(TM), a monthly newsletter for mutual fund investors.
“This past year we’ve seen plenty of good news as 529 college savings plans continue to provide welcome tax benefits and help families take advantage of the savings opportunity. Moreover, the states continue to search for ways to provide better services to investors,” said Kerry O’Boyle, Morningstar mutual fund analyst and author of the study. “We’ve also seen a decline in costs in a number of plans, which should help investors earn better returns.”

O’Boyle added, “However, we want to caution investors to continue to examine fees closely. There can be myriad costs and opaque disclosure, which can make it difficult to truly understand how much such an investment costs.  We recommend that investors look first to their home state plans for additional incentives such as matching grants and state-tax deductions on contributions. These incentives can be meaningful but don’t necessarily overcome the disadvantages of a poor plan.” 

Morningstar’s annual study considers the following factors to be crucial to a successful college savings plan:

  • Costs
  • Quality of underlying investments
  • Portfolio construction and asset allocation
  • Flexibility of the investment options
  • Investment managers’ records of treating shareholders with respect, based on Morningstar’s proprietary Stewardship Grades for funds

Morningstar’s list of the worst 529 college savings plans includes repeat offenders such as the Wyoming College Achievement Plan, which has made the “worst” list every year since Morningstar first introduced the study in early 2004. O’Boyle said the plan continues to be riddled by expensive servicing fees and a lineup of mediocre and costly underlying funds. The state is in early talks to discuss shuttering the plan.

Among Morningstar’s list of the best 529 college savings plans is the Alaska T. Rowe Price College Savings Plan, which investors can buy directly, without a financial advisor or broker.  T. Rowe Price’s sound asset-allocation strategy and reasonable costs make Alaska a top choice for those who prefer active management. 

Nebraska is the only state that has a plan on both the best and worst lists.  Unlike Nebraska's AIM College Savings Plan, which is a high-priced plan consisting of poorly run AIM funds, the Nebraska College Savings Plan provides an attractive mix of plans to suit different risk tolerances and investment styles from fund shops such as American Century, Fidelity, Vanguard and PIMCO.

For the complete report, please visit the Morningstar FundInvestor Web site for a trial subscription:

If you are a reporter and would like access to the Morningstar FundInvestor 529 College Savings Plan study, please contact Kathy Panagopoulos at 312-696-6241 or kathy.panagopoulos@morningstar.com.

About Morningstar, Inc.

Morningstar, Inc. (Nasdaq: MORN) is a leading provider of independent investment research in the United States and in major international markets. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar tracks more than 100,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 16 countries.

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©2006 Morningstar Inc.  All rights reserved.


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