Study: Fees down, quality up in 529 plans

Morningstar's annual look at education plans finds total assets unchanged in 2018.

The quality of investments available through 529 education saving plans continues to improve, according to an annual study by Morningstar, which noted the need for plans to continually review and upgrade their lineups to remain competitive.

Morningstar found that total assets in 529 plans remained mostly unchanged in 2018, due to negative investment returns that were offset by net inflows. Over three- and five-year periods ended December 2018, however, the plans have grown at annualized rates of 7.9% and 7.4%, respectively. Plans sold directly to college savers have contributed the most to this growth, the study of the plans found.

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Fees continue to decline for both direct- and adviser-sold plans, Morningstar said. The average adviser-sold portfolio costs 0.93%, down by 0.06 percentage points since 2017. The average direct-sold portfolio costs 0.39%, which is 0.03 percentage points cheaper than in 2017. All-in fees for 529 plans remain higher than comparable mutual funds due to layers of oversight fees, the report said, noting that small plans with limited scale are burdened by high oversight fees.

Read more: What are portfolio fees?