Age-based options are some of the most popular 529 college-savings plan investments, so their costs have an impact on millions of college savers nationwide. These investments automatically adjust the asset allocation of your savings, becoming more conservative as your child or grandchild gets closer to starting college. The options' simplicity makes them understandably appealing, but their fees are harder to assess. These options can be actively managed, entirely indexed, or a blend of the two. Some plans require you to enroll on your own, while others are sold through financial advisors. All of these factors affect the price you pay, making it hard to compare fees and know whether you're paying a fair price.
Slicing and Dicing
Morningstar sorted 529 age-based options into six buckets to better understand whether the age-based options were competitively priced relative to peers with similar investment strategies and distribution. We categorized these options as either passively managed, actively managed, or a blend of the two. We defined passive as having more than 80% of assets in index funds, and active as having more than 80% in non-index funds. Blend options have more than 20% but less than 80% of assets in index funds. We also split up advisor-sold and direct-sold investments to get six groups total. To keep the data manageable, we only looked at the investments targeted for 10-year-olds.