Age-Based 529 Plans
May 5, 2009 by Miranda Marquit
Filed under Finance
With the school year coming to a close, many people have next year on their minds — and for some of us financial geeks that tends to lead to speculation about the distant future. I’ve been thinking about my son and his college options. More specifically, I’ve been thinking about how we’re (my son will help) going to pay for it all.
529 investment plans
529 plans are tax-advantaged investment accounts meant to be used for education expenses. Many people use these to help fund their children’s educations. The accounts grow as the investments in them gain in value. Of course, the risk is that the accounts lose value when the investments inside of them don’t do very well. Many parents are probably finding this out right now. And it has many more parents thinking about age-based 529 plans. Savingforcollege.com offers this on age-based 529 plans:
Age-based plans are popular, with 75 percent of 529 plans offering such options, according to Wilshire Associates. Such plans allocate plan assets more aggressively for younger 529 account beneficiaries and then switch to more conservative investments as the beneficiary gets closer to college age.
It works much like age-based retirement plans. It’s probably too late for those with children who are close to college or already in college, and who might have lost quite a bit in the recent crash (although if you have a couple of years you might recover). However, for someone like me — with a 6-year-old — now is a good time to invest. With stocks on sale, I could load up the 529 with cheap investments likely to grow pretty well over the next decade — at which point the allocation would shift to something more conservative. The closer my son gets to college, the more the shift will be to capital preservation for what he has gained.
Of course, I’m not sure I like the idea of a plan that automatically shifts things for me. I think I might like to be a little more involved. But, even so, it’s definitely food for thought. The closer a child gets to college attendance, the safer his or her portfolio needs to be.
What do you think of age-based 529 plans?
image source: Oberazzi via Flickr
