529 plan is gift that pays off for years

Instead of showering your child or grandchild with stuff and more stuff this holiday, give a gift that has more permanent value: a 529 college savings plan.

And while shopping for a plan can be complicated and confusing, new research on 529s from Morningstar could make the selection process easier.

With a state-sponsored 529 account, earnings are not subject to federal taxes as long as the withdrawals are used for qualified education expenses, including tuition and technology. Even sweeter, many states offer tax deductions to residents on contributions to a plan.

Remember, you don’t have to limit your shopping to your own state’s plans, nor is there any requirement that your future college student attend good old State U. in order to reap a 529’s tax benefits.

It’s the owner, not the beneficiary, who controls the assets in a 529. You can usually link your account to your 529 account so you can make regular savings, if you wish.

That’s where a new report from Morningstar, the research firm best known for its mutual fund rating, provides help in choosing a plan.

The company recently released its latest rankings of 529 plans, a comprehensive analysis of 62 plans nationwide that hold about 95 percent of the more than $300 billion in investment assets.

Morningstar ranked the plans on more than just investment performance. It also analyzed fees, investment management, investment options, oversight and whether plans offer any special benefits such as scholarships, grants and matching programs.

Based on those factors, Morningstar tagged a plan with either a gold, silver, bronze, neutral or negative rating.

Four plans earned gold ratings this year: Illinois’ Bright Start College Savings plan, Invest 529 in Virginia, Nevada’s Vanguard 529 College Savings plan and the my529/Utah Educational Savings Plan.