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Every year, trusted financial industry investment research and management company, Morningstar, reviews the nation’s 529 college savings programs. Once its analysis is complete, Morningstar ranks the 529 plans in a report released at the end of each October.
Based on this report, Ohio’s 529 Plan is pleased to announce that the CollegeAdvantage Direct 529 Plan maintained its silver rating. In addition, BlackRock CollegeAdvantage, Ohio’s Advisor 529 Plan retained its bronze ranking. This makes Ohio one of only four state programs that have both their Direct and Advisor 529 Plans ranked as medal-class college savings programs by Morningstar. The high ranking for both CollegeAdvantage 529 Plans highlights the strength of these two college savings plans as well as the industry’s regard for Ohio’s 529 Plan as one of the best in the nation.
According to the 2020 Morningstar report by Madeline Hume and Adam Millson, “College savers can have confidence in medalist-rated plans. These plans offer investment options that we expect will collectively outperform and exhibit some combination of the following attractive features across the key pillars: a well-researched asset-allocation approach, a robust process for selecting underlying investments, an appropriate set of options to meet investor needs, strong oversight from the state and investment manager, and low fees.”
According to Bobby Blue, an analyst for Morningstar who reviewed Ohio’s Direct 529 Plan, “The Ohio CollegeAdvantage 529 Savings Plan is designed by a shrewd team and is attractively priced. The plan retains its Morningstar Analyst Rating of Silver, appealing to Buckeyes and out-of-staters alike.”
Blue continues, “Commendable oversight from the Ohio Tuition Trust Authority (the state agency that administers Ohio’s 529 program) qualifies this plan for an Above Average Parent Pillar rating. Longtime CIO Trisha Good (1996) and CEO Tim Gorrell (2015) have pressed for fee reductions when possible and improved the plan, such as in 2016 when they vetted and accepted Vanguard's guidance to increase global diversification across asset classes.”
For the BlackRock CollegeAdvantage 529 Plan, Hume and Millson say that Ohio BlackRock CollegeAdvantage 529 Plan’s “strong active managers and persistent active tactical tilts lead to meaningful differentiation from peers, resulting in a suite of options greater than the sum of its parts.”
This year, Morningstar revised its research process to determine the ranking of a 529 plan, dropping from five pillars to four. The removed pillar, Performance, is now interwoven amongst the four standards, which are:
- Process — Did the plan hire an experienced asset allocator to design a thoughtful, well-diversified glide path for age-based portfolios? What suite of investment options are offered?
- People — What is Morningstar’s assessment of the underlying money managers’ talent, tenure, and resources?
- Parent — Are the program manager ad investment manager good caretakers of college savings capital? Is the state managing the plan professionally?
- Price — Are the investment options a good value?
Morningstar ranked Ohio’s Direct 529 Plan as positive in all four pillars, making it one of only nine Direct plans nationwide to do so.
Other honors for Ohio’s 529 Plan
If you looked at other unbiased 529 plan informational websites, you have discovered how well regarded Ohio’s 529 Plan, CollegeAdvantage, is within the college savings industry. Savingforcollege.com is a trusted and independent college-savings industry resource. In its most recent quarterly analysis of 529 plan investment performances, Ohio’s 529 Plan has topped two of the long-term performance charts.
Nationwide, 49 states and the District of Columbia offer 529 plans. As of June 30, 2020, CollegeAdvantage Direct 529 Plan ranks first in the nation for the best investment performance in two different categories: five year and ten year.
Savingforcollege.com determines a 529 plan’s performance score by comparing seven similar asset-allocation categories between all the nation’s 529 plans, the historical performance of each selected portfolio category, and then averaging the score of all the groupings.
Savingforcollege.com consistently recognizes Ohio’s Direct 529 Plan as one of the best plans in the nation for both Ohio residents and non-Ohio residents.
The Ohio Direct 529 Plan is the only plan in the nation to receive positive ratings from Morningstar in all four ranking pillars as well as earn the five-cap rating from SavingforCollege.com for residents and non-residents.
In addition to performance rankings, Savingforcollege.com also uses a 5-Cap Ranking for the nation’s college savings programs. A 5-Cap designation is dependent on criteria that shows the college savings plan “offers outstanding flexibility, attractive investment, and additional economic benefits (such as generous state tax incentives) that for some people, at least, will provide a substantial boost to their savings. There are few, if any, weaknesses noted in the program.”
Ohio’s Direct 529 Plan is one of only two 529 college savings plans nationwide to earn a 5-Cap rating for both residents and non-residents, as of August 17, 2020. Ohio’s Direct 529 Saving Plan has received this recognition multiple times for the plan’s attractiveness for Ohioans and across the nation.
Ohio’s 529 Plan tax advantages
Why save in Ohio’s 529 Plan? CollegeAdvantage helps families across the nation save money for their children’s future costs associated with college, vocational, trade, or technical school, as well as apprenticeships, while offering tax-advantaged benefits.
First, contributions and earnings grow tax free in a 529 plan, so all investment growth is yours to use to cover college costs. Second, a 529 withdrawal is tax free when used to pay qualified higher education expenses — those costs that are mandatory to attend the federally accredited school or program. Third, a CollegeAdvantage account owner who is an Ohio resident can deduct their 529 contributions from their Ohio taxable income. The deduction is now $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 per year is not a contribution cap. If an Ohio taxpayer contributes $12,000 in one tax year, they will continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all the 529 contributions have been deducted.
Not Just For Four-Year Programs
529 plans can be used for whatever comes after high school, as higher education takes many forms. This list includes not just four-year universities and colleges, but also community colleges, trade and specialty schools, certificate programs, graduate school, law school, medical school and apprenticeships.
Simply put, you can use the funds in your Ohio 529 Plan almost anywhere you are comfortable sending your child and your money. 529 plans can be used at any post-secondary school that accepts federal financial aid. If you want to confirm that the schools your child wants to attend — whether four-year, two-year, graduate, or vocational — accepts federal aid, then do a search to see if the institutions have a Federal School Code on the Free Application for Federal Student Aid (FAFSA). If the schools do, then you can use your 529 funds there.
With the 2019 passage of the SECURE (Setting Every Community Up for Retirement Enhancement), two new qualified higher education expenses have been added to 529 college savings plans.
First, qualified costs for apprenticeships — such as fees, textbooks, supplies, and equipment like required trade tools — now can be paid with 529 distributions. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act in order to use a 529 plan withdrawal. Interested parties can check the U.S. Labor Department’s search tool to confirm that a program is eligible.
Second, student loan repayments are now a qualified cost for 529 plans. Any student loan that qualifies for the federal student loan income tax deduction can now be paid with a 529 distribution. There is a $10,000 lifetime limit per 529 beneficiary. However, an additional $10,000 can be used to repay qualified student loans for each of the beneficiary’s siblings.
Use Ohio’s 529 Plan Nationwide
While you may have saved in Ohio’s 529 Plan, you can use your funds at both Ohio schools and schools nationwide. 529 plans can be used across the United States at any accredited post-secondary school that accepts federal financial aid. To confirm the school’s eligibility, a search to for a Federal School Code on FAFSA.
Tools and calculators
Ohio’s 529 Plan has calculators and tools to shape the 529 plan to best fit your family’s needs. Would you like to receive an estimate on your child’s projected college costs and what monthly 529 plan contribution can help you reach a saving goal? Then use the college savings planner. The cost of waiting tool can approximate how much more money will need to be saved if you get a late start on saving for higher education costs. The tax benefit tool shows the long-term advantages of tax-free growth in a 529 plan compared to a taxable savings account. Answer the risk tolerance questionnaire to determine an investment strategy best suited to your comfort level with risk.
Visit Ohio’s 529 Plan online to start saving today for your child’s future education. An investment in a 529 plan is an investment in your child where every dollar saved today is a dollar that doesn’t have to be borrowed later. A 529 account can be used for whatever comes after high school. If you’d like to do more research, explore Ohio’s 529 Plan —The Plan That Can — at CollegeAdvantage.com.
Posted on November 6, 2020