529 Plan News

The Best-Performing 529 Plans
Two 529 plans are on the top of the heap when it comes to performance: Schwab 529 College Savings Plan (sponsored by the state of Kansas) and South Carolina’s Future Scholar 529 College Savings Plan. These two are the first or second among all direct-sold 529 savings plans, according to a study by Savingforcollege.com. The website looked at three-year and five-year investment performance for the period ending June 30, 2009 for its ranking of 529 plans.

“The second quarter of 2009 was a period of strong recovery for many 529 plans. Just as with IRAs, accounts invested at least partially in stocks regained some of the value lost over the many months since 2007,” said Joseph Hurley Savingforcollege.com founder.

The Schwab 529 College Savings Plan is distributed by discount broker Charles Schwab & Co. and by independent advisers associated with Schwab. American Century Investment Management Inc. manages the plan, but the plan uses mutual funds from a wide variety of fund firms in its age-based and asset-allocation options. Kansas has another direct-sold 529 plan called “Learning Quest,” which scored in the top five for three-year performance.

South Carolina’s Future Scholar plan is managed by Columbia Management Distributors Inc. and features Columbia Funds mutual funds. Other top five direct-sold finishers include two of Nevada’s plans (USAA and Upromise), West Virginia’s SMART529 Select plan, which uses DFA funds, and plans from Iowa, Missouri, New York, Ohio, and Utah. Savingforcollege.com also produces rankings for advisor-sold 529 plans, available through a subscription. Rankings are updated each quarter. The chart on this page shows the top 10 plans according to time period.

One-year Composite Performance Rankings

1. Kansas – Schwab 529 College Savings Plan – Multiple fund families
2. Nevada – USAA College Savings Plan – USAA mutual funds
3. South Carolina – Future Scholar 529 – College Savings Plan (Direct-sold) – Columbia mutual funds
4. West Virginia – SMART529 Select – DFA funds
5. New York – New York’s 529 College Savings Program – Direct Plan Vanguard funds
6. Missouri – MOST - Missouri’s 529 College – Savings Plan (Direct-sold) – Multiple fund families
7. Nevada – The Vanguard 529 Savings Plan – Vanguard funds
8. Nevada – The Upromise College Fund – Vanguard funds
9. Utah – Utah Educational Savings Plan (UESP) Trust – Treasurer’s fund and Vanguard funds
10. Maryland – College Savings Plans of Maryland – College Investment Plan – T. Rowe Price funds

Three-year Composite Performance Rankings (43 plans ranked)

1 South Carolina – Future Scholar 529 – College Savings Plan (Direct-sold) -Columbia mutual funds
2 Kansas – Schwab 529 College Savings Plan – Multiple fund families
3 Ohio – Ohio CollegeAdvantage 529 Savings Plan – Multiple fund families
4 Missouri – MOST – Missouri’s 529 College Savings Plan (Direct-sold) – Multiple fund families
5 Kansas – Learning Quest 529 Education Savings Program (Direct-sold) – American Century & Vanguard funds
6 Nevada – The Upromise College Fund – Vanguard funds
7 Nevada – The Vanguard 529 Savings Plan – Vanguard funds
8 Iowa – College Savings Iowa – Vanguard funds
9 Arkansas – GIFT College Investing Plan – Vanguard funds (UESP) Trust Treasurer’s fund and Vanguard funds

Five-year Composite Performance Rankings (30 plans ranked)

1 Kansas – Schwab 529 College Savings Plan – Multiple fund families
2 South Carolina – Future Scholar 529 College Savings Plan (Direct-sold) – Columbia mutual funds
3 Utah: Utah Educational Savings Plan – (UESP) Trust Treasurer’s fund and Vanguard funds
4 Iowa – College Savings Iowa – Vanguard funds
5 Nevada – The Upromise College Fund – Vanguard funds
6 Nebraska (Direct-sold) – Multiple fund families
7 Nevada – The Vanguard 529 Savings Plan – Vanguard funds
8 New Jersey – 0 NJBEST 529 College Savings Plan – Franklin Templeton funds
9 Wisconsin – EdVest (Direct-sold) – Wells Fargo and Vanguard funds
10 Alaska – T. Rowe Price College Savings Plan – T. Rowe Price funds

The full 529 Plan Performance Rankings showing one-year, three-year, and five-year rankings for all direct-sold 529 plans can be viewed at www.savingforcollege.com/articles/view.php?id=330.

Expanding Access to 529 Plans
Mid- to high-income families are the main participants in 529 college savings plans, leaving out low-income families. But this can change, according to a report by the Center for Social Development (CSD) at Washington Univ. in St. Louis.

CSD called the 529s plan, “a valuable but underutilized public good.” The 529 savings plan platform lends itself to more inclusive saving with plan features, such as public oversight and outreach, safe investment options, centralized accounting and record keeping, economies of scale, low deposit minimums, simple and low-cost investment options, and matching incentives.
The states and the federal government can do a lot more to expand access to 529s. CSD suggests making 529s less regressive by placing a national cap on the maximum contributions eligible for federal tax benefits at a reasonable level, not to exceed $200,000 per beneficiary.
Also, the federal framework should include greater fairness in public subsidies for 529 savings, automatic or default features for enrollment and depositing, and simple, safe, and low-cost investment options.

Although low-income families typically save small amounts, many are able to save more with well-designed products and incentives. Perhaps more important, there is growing evidence that savings and household assets, even small amounts, are associated with positive differences in children’s lives.

Forty-six percent of those who participated in Maine’s 529 matching grant program had adjusted gross income below $40,000, with 26% below $30,000 and 11% below $20,000 (Income eligibility requirements ranged from $50,000 to $52,500).

Over a three-year savings period, mean average annual contributions were $901 for all participants (median $475) per year. Income level was not statistically associated with saving performance.

CSC also reported that people who save for college, but don’t use a 529 plan have very low familiarity for this option. In fact, 56% of these savers don’t know anything about 529 plans.

The following are the top reasons people give for not saving for college:

• I don’t have enough money.
• I’m focusing on other saving priorities.
• I expect my child to qualify for scholarships.
• I haven’t gotten around to starting a savings plan.

For more information, visit http://csd.wustl.edu/ Publications/Documents/RPB09-29.pdf

529 Assets Are on the Mend
Assets in 529s levers were up 15% from first quarter assets, but are 11% lower than they were one year ago, according to the Financial Research Corp. of Boston Net new cash in the plans rose to $2.4 billion, from $1.7 billion in the first quarter. But net new cash, or gross sales minus redemptions, were down 41% from last year’s second-quarter, according to the Financial Research Corp.