Ohio 529 Recognized Among Nation’s Best Education Savings Programs by Morningstar
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 beginning of November 2022.
Ohio’s 529 Plan is pleased to announce that the CollegeAdvantage Direct 529 Plan maintained its silver rating for the tenth year in a row. In addition, BlackRock CollegeAdvantage, Ohio’s Advisor 529 Plan retained its bronze ranking. This makes Ohio one of only three 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 2022 Morningstar report by Patricia Oey, “Morningstar Medalist plans offer investment options that we expect will collectively outperform and exhibit some combination of the following attractive features: A well-researched asset-allocation approach; a robust process for selecting underlying investments; an appropriate menu of options to meet investor needs; strong oversight from the state and investment manager; and minimal fees. Families invested in these 529 plans should be well-positioned for the future.”
According to Karen Zaya, a Morningstar analyst who wrote the reviews for both Ohio’s Direct and Advisor 529 Plans, “The Ohio Direct CollegeAdvantage 529 Savings Plan offers affordable options run by skilled investment managers and is overseen by a dedicated steward. It receives a renewed Morningstar Analyst Rating of Silver. The investment cohorts contributing to this plan are well-equipped and deeply experienced, underpinning an Above Average People rating. Vanguard’s Investment Strategy Group is responsible for the construction of the newly adopted progressive glide path, which is populated by a tidy lineup of Gold- and Silver-rated Vanguard index funds. Wilshire also manages a progressive option that includes exposure to active and passive funds, engaging its asset-allocation and manager selection teams to design the lineup.”
Zaya continues, “The Ohio Tuition Trust Authority (the state agency that administers Ohio’s Direct 529 program) has exerted a considerable influence on these direct-sold offerings. Continuity of leaders like tenured CIO Trisha Good (1996) and CEO Tim Gorrell (2015) and their commendable efforts to advocate for plan participants and gradually enhance this plan support an Above Average Parent rating. Ohio’s team works with consultant Wilshire to oversee this offering and has been historically effective in driving down fees, for example.
For the BlackRock CollegeAdvantage 529 Plan, Zaya says that Ohio BlackRock CollegeAdvantage 529 Plan “offers investors access to a thoroughly researched glide path with additive tactical shifts executed by an experienced asset-allocation team and overseen by a dedicated steward. Higher-than-average fees continue to cap its Morningstar Analyst Rating at Bronze. BlackRock’s Multi-Asset Strategies and Solutions group is well-equipped and considerably experienced in the construction of multi-asset portfolios and glide paths, underpinning an Above Average People rating. The division plies a team-based approach. …. Deep research and quantitative analysis inform the plan’s strategic design, which is complemented by proven approaches to tactical allocation and manager selection. These factors coalesce to form a distinct edge for this plan, which supports an elusive High Process rating.”
Morningstar research process to determine the ranking of a 529 plan, is based in four pillars. Ohio’s Direct 529 Plan ranked positive in all four pillars, making it one of only six plans nationwide to do so. The pillars 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 and investment manager good caretakers of college savings capital? Is the state managing the plan professionally?
- Price — Are the investment options a good value?
Other honors for Ohio’s Direct 529 Plan
Saving For College is an independent college-savings industry resource. Saving For College consistently recognizes Ohio’s Direct 529 Plan as one of the best plans in the nation for both Ohio residents and non-Ohio residents.
Forbes Advisor ranks Ohio’s 529 Plan as one of the six best college savings programs in the nation. According to their explanation: “Ohio’s 529 Plan comes with features in line with the other plans on our list, including low fees, a range of investment options and a tax deduction for Ohio taxpayers. … The plan also comes with a minimum contribution, both to open the account and for each contribution thereafter. But it is small ($25) and likely manageable for many plan participants.”
CNBC also selected Ohio’s 529 Plan as one of the five best programs nationwide. As they wrote, “There isn’t much not to like about the CollegeAdvantage 529 plan — there’s a good mix of investment options (including FDIC-insured accounts), low fees and plans from top companies like Dimensional Fund Advisors. In fact, overall management fees are some of the lowest we’ve seen. Combined with low expense ratios, this makes this plan one of our top picks.”
Ohio’s Direct 529 Plan is one of three plans in the nation to receive positive ratings from Morningstar in all four ranking pillars as well as earn the five-cap rating from Saving For College for residents and non-residents. Ohio’s Advisor BlackRock CollegeAdvantage 529 Plan is one of two plans to receive positive rankings in three Morningstar ranking pillars and earn five-cap rating from Saving For College for residents and four-and-a-half-star rating for 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 ten 529 college savings plans nationwide to earn a 5-Cap rating for both residents and non-residents, as of March 31, 2022. 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, an Ohio resident who contributes to a CollegeAdvantage 529 account – whether as the account owner or making a monetary gift – 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.
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.
What Costs Do 529 Plans Cover?
What can you pay for tax-free with a 529 plan? Many qualified higher education expenses, which are the required costs to attend an accredited education institute to earn a two-year, four-year, graduate or professional degree.
- room and board during any academic period in which the 529 beneficiary is enrolled for at least half of the full-time academic workload according to the eligible education institution;
- mandatory fees;
- computer equipment and related technology as well as internet services;
- books, supplies and equipment related to enrollment and class schedule; and
- certain expenses for a special-needs student;
- Qualified apprenticeships costs such as fees, textbooks, supplies, and equipment like required trade tools. 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 registered, and therefore, eligible for a 529 withdrawal; and
- Payment of the principal and interest on qualified education loans for the 529 beneficiary or the beneficiary’s siblings. The loan repayment provision applies to repayments up to $10,000 per beneficiary. The $10,000 is a lifetime amount, not an annual limit.
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.
Families can open an account for as little as $25. Any Ohio taxpayer (parents, grandparents, other family members and/or friends) who contributes to the account can claim a deduction of up to $4,000 per beneficiary, per year, from their state of Ohio taxable income. Ohioans have until 4 p.m. ET December 30, 2022, to make those last-minute contributions in good standing. Account owners pay no taxes on the funds as they grow and withdrawals used for 529 qualified higher education expenses are free from state and federal income taxes.
For more than 33 years, Ohio’s 529 Plan has been helping families across the nation save for their children’s higher education. Ohio’s 529 Plan covers qualified costs at any four-year college or university, two-year community college, trade or vocational school, apprenticeship approved by the U.S. Labor Department, or certificate program nationwide that accepts federal financial aid. Start, add, or give a gift with as little as $25 at CollegeAdvantage.com.
This article was originally posted in November 2021 and has been updated to reflect new information for 2022.
Posted on December 01, 2022