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Best and Worst 529 Plans

Posted by: Karyn McCormack on April 23, 2009

If you’re enrolled in a 529 college savings plan, you’re probably feeling some angst when looking at the plans’ performance given the market’s horrible returns last year. “Unfortunately, the past year hasn’t been so rosy in the college savings universe,” wrote Greg Brown, author of Morningstar’s annual “Best and Worst 529 College-Savings Plans” survey released today. “Several plans had maintained too-aggressive asset allocations for students nearing or in college, while other plans were hamstrung by their allegiances to floundering investment options.”

Brown calls OppenheimerFunds, which manages nine separate college savings plans in five states, “the poster child for how badly some 529 players went awry in 2008.” Oppenheimer Core Bond (OPIGX) was a fixture in those Oppenheimer-managed 529s and lost more than 35% in 2008 due to management’s bets on nonagency mortgages (losses were amplified by exposure to the battered commercial mortgage-backed securities market through derivatives), Brown says. Also littering those same plans were Oppenheimer Limited-Term Government (OPGVX) and U.S. Government (OUSGX), two other troubled fixed-income funds that were run by the same management team as Core Bond, he says.

One of the worst 529 plans on Morningstar’s list is New Jersey Best 529 College Savings Plan — that’s the one my parents set up for my daughter (now four years old). Morningstar faults this plan for its “overly aggressive age-based option combined with a lack of flexibility,” above-average fees, and only two single-fund options. And New Jersey residents do not get state income tax deductions for contributions. So after checking the plan’s dismal returns (its 529 Portfolio Age Newborn-8 Years allocation has lost 36% in the last year through Mar. 31), I think it’s time to ditch this plan if we can — or at least start another plan somewhere else.

Here’s Morningstar’s list of the five best and worst 529 plans, based on its evaluation of the underlying funds, expenses, diversification, asset allocation, and flexibility. Morningstar says it does not rank them, but usually puts newcomers at the top of each list. This year, there are two newcomers on the Best list, and three on the Worst list (click here for more information about each one).

Best 529 College-Savings Plans
Name, Program Manager
Ohio CollegeAdvantage, Ohio Tuition Trust Authority
Indiana CollegeChoice 529 Direct Savings Plan, Upromise Investments
Utah Educational Savings Plan Trust, UESP Trust
Virginia Education Savings Trust, Virginia College Savings Plan Board
Virginia CollegeAmerica 529 Savings Plan, American Funds

Worst 529 College-Savings Plans
Name, Program Manager
Nebraska State Farm College Savings Plan, OppenheimerFunds
New Jersey Best 529 College Savings Plan, Franklin Templeton
Montana Pacific Life Funds 529 College Savings Plan, Pacific Life Funds
Ohio Putnam CollegeAdvantage, Putnam
Nebraska AIM College Savings Plan, Union Bank and Trust Company

Are you also unhappy with your 529 plan? Do you think these plans are worth it? Please share your experience, and I’ll update you on my progress of finding a new 529 plan too.

Reader Comments


April 23, 2009 3:51 PM

Why do 529 plans restrict my investment choices? Why restrict me to a Vanguard, Oppenheimer or American Funds in a particular state?

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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