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Utah, Alaska Among Top 529 Plans

Excerpt: For the second consecutive year, college-savings plans in Utah, Michigan, Alaska and Virginia snagged the top spots on research firm Morningstar Inc.'s annual list of the best 529 plans.

For the second consecutive year, college-savings plans in Utah, Michigan, Alaska and Virginia snagged the top spots on research firm Morningstar Inc.'s annual list of the best 529 plans.

The Chicago firm -- which began evaluating these vehicles last year -- compiled its rankings by looking at different plans' costs, investment options, flexibility and fund firms' reputations. The list is designed to provide investors with a starting point to evaluate these savings plans, which hold more than $45 billion in assets.

State-sponsored 529 plans, named after a section of the tax code, have gained favor with investors in recent years because money can be withdrawn tax free later at the federal level for qualified higher-education expenses. Individual states often provide additional tax breaks to encourage investors to save for college. Each 529 plan restricts holders to a set menu of investment portfolios, which typically include mutual funds.

In the 2005 rankings, Morningstar listed the top three direct-sold plans and the top three broker-sold plans as well as the five worst 529 plans. This format represents a slight departure from last year, when the rankings listed the top five best and worst plans.

Morningstar ranked 529 offerings in Alaska, Utah and Michigan as the top plans sold directly to investors, and those in Colorado, Kansas and Virginia as the best plans sold through brokers. Officials from these six states weren't available for comment. Overall, about 80% of 529 assets are invested in broker-sold rather than direct-sold plans, according to Morningstar.

This year, Arizona and Wyoming again had the dubious honor of having the worst 529 plans in Morningstar's ranking, while Alabama, Maine and Tennessee made this list for the first time.

Morningstar said the plans in Maine, Arizona and Wyoming have among the highest fees -- A shares in Wyoming's plan charge fees of as much as 2.43% of invested assets -- while Alabama's and Tennessee's plans are "subpar" with "no meaningful tax breaks to keep investors in state."

A spokeswoman for the Maine plan said there were inaccuracies in the Morningstar report, but declined to elaborate. Officials from Arizona and Tennessee separately said the states hadn't seen the findings. Wyoming and Alabama officials weren't available for comment.

Investors who have money in one of Morningstar's five worst 529 plans should consider the rankings "a call to action to take a second look at that choice to see if you can do better for yourself," said Dan McNeela, a senior analyst at Morningstar.

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