Utah college savings plan rated one of best in US, Morningstar says
Deseret News file photo
Utah's 529 college savings plan ranks as one of the nation's six best because of its low cost, according Morningstar Inc., the investment fund researcher.
Chicago-based Morningstar ranked the nation's top 58 plans, which account for 95 percent of $133 billion invested in U.S. 529 plans. A 529 plan, typically sponsored by a state, allows parents and others to prepay college tuition or set up a college savings plan, similar to a retirement account. Earnings are exempt from federal tax and some state tax when used for eligible education expenses.
"The plan’s investment options are easy to own and are run by experienced managers who work for firms with excellent stewardship practices," Morningstar said in a report released today. "These plans have performed well, given their strategies, and charge a fair price. These plans are leading choices for investors who live in the states where the plans are based, and they’re also good choices for investors doing a nationwide search."
The Utah Educational Savings Plan, as it is called, has $4.1 billion in assets as of Oct. 27, said Diane Johnson, outreach manager at Utah Educational Savings Plan in Salt Lake City.
Utah's average total expense ratio, at 0.24 percent, is the lowest in the nation. The expense ratio refers to how much it costs to run the fund. By comparison, Alaska's John Hancock Freedom 529 costs about seven times more, at 1.88 percent.
To be sure, Utah's tax benefits aren't as good as Indiana, which gives participants a $1,000 state tax credit if they contribute $5,000 to a plan. By comparison, Utah contributors receive $250 in benefits.
Utah 529 investments are typically made up of Vanguard-indexed investment options, which yield returns near the average, the report said.
To compile the report, Morningstar looked at the quality of the investment portfolio, total performance, manager skill, plan administration and plan costs. Utah received a "Top" rating.
"529 plans receiving a 'Top' rating incorporate the industry's best practices, including solid investment choices at a fair price," the report said.
Other ratings include "Above Average," "Average," "Below Average" and "Bottom."
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