How to Maintain Your 529 Plan During Uncertainty

Is it time to focus in income vs. growth?

The uncertainty of today’s economy, rising interest rates, and market volatility may have you concerned about your 529 plan’s performance over the past months. If your child or grandchild has an upcoming tuition bill soon, now may be an appropriate time to review the 529 plan. Here are some tips to help you maintain your 529 plan during periods of uncertainty.

Check the 529 plan’s allocation

About two-thirds of 529 plans are age-based plans, with the remaining one-third of 529 plans having the investment strategies selected by the plan’s owner. Here are the two options available when it comes to choosing 529 investment strategies that you need to be aware of:

1) Aged-based plans

Age-based plans are designed to automatically change the allocation as the child ages becoming more conservative in the strategy selection as the child approaches college. For example, a two-year-old’s 529 plan may have strategies that have a more aggressive risk profile containing more stocks. A sixteen-year-old child with a 529 plan may have an allocation with more conservative strategies such as index funds or bonds or FDIC-insured investment choices such as CDs.

2) Independent selection of investment strategies

This enables the 529 plan owner to select, rebalance, sell, and reinvest into the 529 plan. The 529 plan must continue to be monitored so that as market conditions change and the child ages, the value of the 529 plan covers tuition expenses, even in a down market. If the owner doesn’t monitor the plan and make adjustments, the investment strategies may be too aggressive or lose value as the timeline of needing the funds approaches.

Continue to save

While stopping contributions to the 529 plan during a declining market may be tempting, continuing enables you to buy shares at a lower price. Use the opportunity of a down market to buy more if you’re budget allows, as a strategy to accumulate more value when the market recovers.

Remain calm

It’s important not to make any fear-based decisions as the value of your 529 decreases. Visit with your financial professional to determine a strategy appropriate to your risk tolerance and timeline, and then implement the allocation strategy when the market recovers. Remember, liquidating during a down market may not provide an opportunity to recover your 529 plan losses.

Use cash

If you have the financial means, pay cash for tuition versus withdrawing from the 529. Using cash from savings enables you to wait until the market recovers, then pay yourself back. Remember that 529 distributions must be used for expenses in the same year you took the distribution to avoid IRS penalties.

Consider a student loan

Take a student loan now and pay it back with the 529 plan’s distribution once the market recovers. This strategy enables your 529 plan’s allocations to recover versus liquidating shares at a low market valuation.

visit with your financial professional

Talking to a financial professional about your 529 plan can help determine the appropriate time to change your allocation or update your strategy. Speak to a fiduciary advisor today to get started!

© 2022 Trajan® Wealth LLC. Nothing in this blog is intended as investment advice, nor is it an offer to buy or sell any security. Please consult your financial advisor for questions about your personal financial situation. All investments involve risk, including the potential for loss. Trajan Wealth clients and employees may have a position in any of the securities mentioned. Portfolio holdings and other data are subject to change at any time and without notice. Additionally, the above links provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links.

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