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School is in session for those shopping for the best college- savings plan.
Morningstar of Chicago has just released its third annual list of best and worst 529 college savings plans in the country, comparing costs, performance, quality of underlying assets, investor flexibility and options.
Honors go to direct-sale plans sponsored by Alaska, Nebraska and Utah. For broker-sold plans, Morningstar recommends Colorado's Scholar's Choice program, South Dakota and Virginia's College America plan.
Class dunces include Alabama, Arizona's Pacific and SM&R Family funds, Nebraska's AIM fund, North Carolina, North Dakota and Wyoming's College Achievement.
"I hope that as more people become aware of 529 plans and the more visibility they get, the more competitive pressure they feel to bring down fees to manageable levels," said Kerry O'Boyle, co- author of the Morningstar report.
Competition has already kicked in. Created by Congress in 1996 and named after the section of the Internal Revenue Code that allows them, 529 college savings plans did not gain widespread popularity until 2002, when another legislative change made all contributions to the accounts totally Federal tax-free. Since then, the number of available funds and their assets have proliferated. By September 2005, investors had stored $60 billion in these accounts, a 40% increase over 2004.
Although the Federal tax exemption associated with the plan is scheduled to expire in 2011, most analysts agree that Congress will most likely renew the program and its popularity will continue to grow, said Arbab Hassan, a business analyst with 401kid, a education- focused financial planning company in New York.
In part, that's because the cost of college continues to rise. In the last decade, the price of post-secondary education has increased, on average, 5.11% per year, according to 401kid data. Projections from...