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AP Personal Finance Writer
BOSTON--College savings plans offered through the states of Alaska, Maryland, Nevada and Utah earned top marks from Morningstar Inc. in the company's annual update to ratings of so-called 529 plans.
Another four plans received second-rung silver-medal ratings from Morningstar, which found that many of the state-sponsored plans reduced fees and improved investment options over the past 12 months.
The two other plans winning silver-medal honors were Arkansas' iShares 529 Plan, run by UPromise Investments, and the Michigan Education Savings Program, run by TIAA Tuition Financing Inc.
Morningstar is best known for its research on mutual funds, but it also rates 529s, named after the federal tax code that created them in 1997. States set their own guidelines for these investment accounts, which permit withdrawals for college expenses to be made free of federal taxes.
The plans are popular because of the tax benefits they offer, compared with stashing savings in bank accounts or certificates of deposit. Investors aren't limited to investing in their own state's plan. However, there's frequently an incentive because about two-thirds of states extend state tax deductions or credits to residents.
Some plans are "direct-sold," meaning that parents can open accounts directly through an investment firm or the state plan administrator. "Adviser-sold" plans are available through financial advisers. They generally charge higher fees than direct-sold plans but come with professional advice. Some states offer more than one plan, and investment options vary within plans.
In its ratings update Monday, Morningstar assessed 64 plans that manage more than 95 percent of the total assets in 529s. Plans were rated from gold, silver and bronze down to "Neutral" and "Negative," the scale used for Morningstar's Analyst Ratings method.