Morningstar’s Guide to 529 Plans

A 529 college savings plan can be a powerful tool when saving for future education expenses because investments in the plan can grow tax-free. In this guide, you’ll find what you need to know about 529 savings plan options and how to choose a plan and start saving.

We’ll also answer frequently asked questions about 529 college savings plans, including tax benefits, fees, and what to do with leftover balances.

What Is a 529 Plan?

A 529 college savings plan is an investment vehicle that allows for a tax-advantaged way to pay for education costs.

With a 529 plan, you contribute aftertax dollars into an account where you can choose from several investment options, such as equity funds, bond funds, or a portfolio that gradually derisks over your investment period. When the time comes, you can withdraw money tax-free (meaning you don’t have to pay capital gains taxes), to cover qualified educational expenses like tuition, fees, books, a computer, or room and board. 529 accountholders can request a withdrawal to pay an educational institution or to reimburse themselves for a beneficiary’s qualified education expenses.

You can also use a 529 plan to pay for graduate school, trade school, and, in some states, even K-12 private education.

The Basics of 529 College Savings Plans

Here is our doorway to 529 plans, one of the most often-used college savings plans.

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How Does a 529 Plan Work?

Anyone can open a 529 plan and name a beneficiary. Typically, parents open a 529 plan for their child, but anyone can open one as long as there is a beneficiary who’s planning to go to school. You can even name yourself as a beneficiary if you’re planning on having a child and want to get a head start in saving for their education.

If a beneficiary no longer needs the money in the account (by deciding not to go to school or by earning a scholarship, for example), the 529 account owner can name a new qualified beneficiary without incurring federal or state income tax penalties. Qualified beneficiaries are members of the current beneficiary’s family, which includes siblings, children, nieces and nephews, their spouses, or a first cousin. In addition, beneficiaries with an account open for 15 years or more can transfer unused funds to their Roth IRA.

Most 529 plans don’t have contribution limits, but putting money into a 529 account is considered a gift. So, 529 contributions are subject to the annual gift tax exclusion. If you go over the gift tax exclusion limit in a given year, any extra 529 contributions get counted against your lifetime gift tax exemption.

Unlike brokerage accounts, 529 plans generally do not provide the ability to purchase individual stocks. In fact, families cannot take an active or trading approach to these 529 accounts, as investment changes are only allowed twice a calendar year. Contributions into the account are also invested in your preselected investment option once the check or bank transfer clears. It is usually not possible to deposit the money into a cash account and then decide when to invest. You can read more about the investment options in 529 plans later in this article.

How Do I Choose a 529 Plan?

Step 1: Evaluate Your State Tax Benefit

A majority of states offer a state income tax benefit if you invest in your state-sponsored plan. Depending on how much you contribute, your income level, and how generous the state income tax benefit is (some states have relatively low limits on how much of your contribution you can deduct), you may want to select your state’s plan, even if it is not highly rated or carries slightly higher fees.

Since every family’s situation is different, it may help to consult a tax specialist to determine the value of this benefit.

Step 2: Use Morningstar to Compare Plans

Morningstar rated 59 plans representing more than 90% of the 529 industry’s assets. Of those plans, 31 earned

of Gold, Silver, or Bronze. These 529 plans offer investment options that we expect will outperform and exhibit some combination of the following attractive features:

• A well-researched asset-allocation approach
• A robust process for selecting underlying investments
• A well-resourced, experienced investment team
• Stable, engaged oversight from the state
• Low fees

What Are the Best 529 Plans?

In our Morningstar 529 reports, we highlight the pros and cons of each 529 plan’s investment options. This includes an assessment of the asset manager or investment advisor (such as Vanguard, TIAA, or Wilshire), the asset-allocation process, and the quality of the funds available in each 529 plan.

The following Gold-rated plans are the five we’ve assessed to be the best 529 plans available.

Source: Morningstar. Data as of Nov. 10, 2025.

Utah’s my529 Plan

Utah’s my529 plan is the only 529 plan that’s consistently received a Gold rating since we debuted our ratings in 2012. This plan features a straightforward, well-designed target-enrollment series and a unique custom option that allows investors to build their own glide paths using Vanguard and DFA funds.

Alaska’s T. Rowe Price College Savings Plan

Alaska’s T. Rowe Price College Savings Plan taps an industry-leading multi-asset investment team at T. Rowe Price that follows a robust and research-driven approach to education savings.

Pennsylvania 529 Investment Plan

The Pennsylvania 529 Investment Plan continues to benefit from its topnotch state oversight. The Pennsylvania Treasury Department has built an impressive record of effective governance, including a successful negotiation with its investment manager and program manager that will lead to accelerated fee reductions as the plan’s assets grow.

Massachusetts’ U.Fund College Investing Plan

Massachusetts’ U.Fund College Investing Plan features a well-resourced investment team at Fidelity. While four other states offer similar plans managed by Fidelity, the state of Massachusetts stands out with its scrupulous oversight and continuous, effective engagement with the firm.

Illinois’ Bright Start Direct-Sold College Savings

Illinois’ Bright Start Direct-Sold College Savings Plan offers compelling investment options that are also highly cost-effective. Notably, the state offers a wide range of high-quality investment options across multiple firms, compared with some peers whose offerings are restricted to a single asset manager.

What Are My Investment Options in a 529 Account?

While 529 plan offerings differ from state to state, the basic structure is similar. All plans provide an age-based or target-enrollment series, which are set-it-and-leave-it investment options that gradually derisk during the accumulation and savings period. These options can serve as a default choice for most investors, similar to a target-date fund for retirement savers.

For investors who want to select their own investments, 529 plans also offer a menu of mutual funds (typically one or two dozen), such as a 60/40 balanced fund, an S&P 500 fund, or more specialized funds such as value, growth, or small-cap funds. Plans also provide an FDIC-insured account or a stable-value account as their least risky option.

What Are the Tax Benefits of 529 Plans?

Part of what makes 529 plans such effective options for savings is the mix of tax benefits that they can offer to investors. A combination of federal and state-level tax breaks, deductions, and credits is available, depending on where you live.

The variety of options can make the process of selecting a 529 plan feel overwhelming, but there are resources available to determine what you may be eligible for.

Do 529 Plans Charge a Lot of Additional Fees?

In addition to the fund expense ratios, 529 investments do carry additional fees, such as program management fees and state fees. Plans sold through an advisor will also have marketing and distribution fees.

Anything in the range of 0.01% to 0.10% would be considered a lower fee. Additional fees of over 0.20% (for a direct-sold plan) would be relatively unattractive. Although less common now, plans may also charge enrollment fees, account fees, or statement fees.

Quick Tips About 529 College Savings Plans

Here are some takeaways about 529 plans that can benefit both new and veteran investors who are looking to take full advantage of their offerings.

1. Calculate an estimate of the state income tax benefit you would receive from your 529 contribution. This can help you decide whether to invest in your state’s plan or look elsewhere.
2. Know the rules regarding qualified education expenses. Some states include K-12 private tuition and expenses related to apprenticeships, such as books and equipment.
3. If the beneficiary does not use the account, the accountholder can change the beneficiary to an approved family member, such as a sibling or cousin.
4. A child can be the beneficiary of more than one plan. For example, grandparents and parents can open multiple 529 accounts for the same child.
5. Leftover money in the account can be rolled over to a Roth IRA, subject to some restrictions.