COLLEGE SAVINGS 101

Savingforcollege.com

Morningstar awards "Gold" rating to four 529 plans
http://www.savingforcollege.com/articles/morningstar-awards-gold-rating-to-four-529-plans-859

Posted: 2015-10-25

by Kathryn Flynn

Financial Professional content

If you have clients with children or grandchildren, you should be talking about 529 plans. While these investment vehicles are the best way for most families to save for college, they are unique in the way they operate and can be very confusing to the novice investor. If you reside in a state that offers a tax credit or deduction for contributions, you might be inclined to simply recommend your clients enroll in their home state’s direct-plan. 34 states, including the District of Columbia, currently offer this perk. In some cases, this is great advice. In addition to the state tax break, many direct-sold plans offer less costly, index-based investment options. But remember, your clients don’t have to invest in their home state’s plan. In fact, six of these states will offer a tax benefit for residents who invest in any state’s plan.

There are also a number of other scenarios where clients could use your help finding the best 529 plan. Perhaps they’ve claimed the maximum tax deduction for their home state’s plan, and want to diversify their college savings by enrolling in additional plan from another state. Or your might live in a state such as California, which doesn’t offer a tax benefit for 529 contributions, or you reside in one of the seven states with no income tax. And even if your state does offer benefits for residents who use their home state’s plan, you may be able to find superior investment performance or lower fees in another state’s plan that outweigh the tax break.

This presents an opportunity for you to add value as a trusted advisor by helping your clients plan for one of the most significant expenses their family will face – college. Morningstar and Savingforcollege.com offer helpful tools that can help you sift through the hundreds of 529 plan options available to help find the most suitable investment for your clients’ needs.

RELATED: Find out how much your state’s tax benefit is really worth

Morningstar recently released their annual 529 college savings plan rankings after evaluating 63 direct- and advisor-sold plans based on the following pillars:

  • Process - the plan’s investment options
  • People –the reputation of the underlying money managers
  • Parent – the states and program and asset managers
  • Price - the cost of the underlying investment options
  • Performance – the plan’s risk adjusted track record and expected future performance.

Plans were categorized as Gold, Silver, Bronze, Neutral or Negative. This year, 29 plans were received one of the top three ratings, because they are expected to outperform peers on a risk-adjusted basis. 32 plans were rated “Neutral” and only two plans were rated “Negative”. 2015’s highest rated 529 college savings plans included direct-sold options from Maryland, Alaska, Nevada and Utah.

At Savingforcollege.com, we also publish our own 529 Plan Composite Rankings on a regular, quarterly basis, based on the underlying performance of portfolios in seven asset allocation categories. These include separate ranking lists based on distribution – direct-sold plans, advisor sold plans and plans offered through RIA channels – in order to provide an accurate comparison for our readers, depending on how they will purchase their plan.

Savingforcollege.com’s 529 Plan Composite Rankings also include separate lists based on 1-, 3-, 5- and 10-year periods to give families a better idea of how plans are performing currently and since inception. Direct-sold rankings are available to the general public, and advisor-sold and RIA channel 529 plan rankings are available with a Savingforcollege.com premium subscription.

RELATED: 5 ways to judge your 529 plan’s performance

College is a major investment for today’s families, so it’s crucial to ensure your clients are using the best plan to help reach their savings goals. The methodologies used by Morningstar and Savingforcollege.com are quite different, so it’s important to explore both studies when evaluating a 529 plan. For example, here’s how Morningstar’s 2015 Gold rated plans fared according to Savingforcollege.com’s 529 Plan Composite Rankings for direct-sold plans, as of June 30, 2015:

RELATED: 6 biggest advisor misconceptions about 529 plans

Financial Professional content

If you have clients with children or grandchildren, you should be talking about 529 plans. While these investment vehicles are the best way for most families to save for college, they are unique in the way they operate and can be very confusing to the novice investor. If you reside in a state that offers a tax credit or deduction for contributions, you might be inclined to simply recommend your clients enroll in their home state’s direct-plan. 34 states, including the District of Columbia, currently offer this perk. In some cases, this is great advice. In addition to the state tax break, many direct-sold plans offer less costly, index-based investment options. But remember, your clients don’t have to invest in their home state’s plan. In fact, six of these states will offer a tax benefit for residents who invest in any state’s plan.

There are also a number of other scenarios where clients could use your help finding the best 529 plan. Perhaps they’ve claimed the maximum tax deduction for their home state’s plan, and want to diversify their college savings by enrolling in additional plan from another state. Or your might live in a state such as California, which doesn’t offer a tax benefit for 529 contributions, or you reside in one of the seven states with no income tax. And even if your state does offer benefits for residents who use their home state’s plan, you may be able to find superior investment performance or lower fees in another state’s plan that outweigh the tax break.

This presents an opportunity for you to add value as a trusted advisor by helping your clients plan for one of the most significant expenses their family will face – college. Morningstar and Savingforcollege.com offer helpful tools that can help you sift through the hundreds of 529 plan options available to help find the most suitable investment for your clients’ needs.

RELATED: Find out how much your state’s tax benefit is really worth

Morningstar recently released their annual 529 college savings plan rankings after evaluating 63 direct- and advisor-sold plans based on the following pillars:

  • Process - the plan’s investment options
  • People –the reputation of the underlying money managers
  • Parent – the states and program and asset managers
  • Price - the cost of the underlying investment options
  • Performance – the plan’s risk adjusted track record and expected future performance.

Plans were categorized as Gold, Silver, Bronze, Neutral or Negative. This year, 29 plans were received one of the top three ratings, because they are expected to outperform peers on a risk-adjusted basis. 32 plans were rated “Neutral” and only two plans were rated “Negative”. 2015’s highest rated 529 college savings plans included direct-sold options from Maryland, Alaska, Nevada and Utah.

At Savingforcollege.com, we also publish our own 529 Plan Composite Rankings on a regular, quarterly basis, based on the underlying performance of portfolios in seven asset allocation categories. These include separate ranking lists based on distribution – direct-sold plans, advisor sold plans and plans offered through RIA channels – in order to provide an accurate comparison for our readers, depending on how they will purchase their plan.

Savingforcollege.com’s 529 Plan Composite Rankings also include separate lists based on 1-, 3-, 5- and 10-year periods to give families a better idea of how plans are performing currently and since inception. Direct-sold rankings are available to the general public, and advisor-sold and RIA channel 529 plan rankings are available with a Savingforcollege.com premium subscription.

RELATED: 5 ways to judge your 529 plan’s performance

College is a major investment for today’s families, so it’s crucial to ensure your clients are using the best plan to help reach their savings goals. The methodologies used by Morningstar and Savingforcollege.com are quite different, so it’s important to explore both studies when evaluating a 529 plan. For example, here’s how Morningstar’s 2015 Gold rated plans fared according to Savingforcollege.com’s 529 Plan Composite Rankings for direct-sold plans, as of June 30, 2015:

RELATED: 6 biggest advisor misconceptions about 529 plans

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