De-Risking Your 529 Plan
By: Kate Hennessy, CFP®
This month thousands of students will graduate from high schools across the country.
For many parents, their dream was to be able to support their children going to college and many of them started to save for their child’s college expenses at a very young age. The appropriate investment that they selected was likely through a state run 529 plan and a target date fund or asset allocation fund that “rolled down” or became more conservative as their child approached his/her high school graduation date. The earnings from that investment and your periodic contributions helped to generate a sizeable amount of assets your child can use to pay for college.
Great news if your child just graduated high school and you are fortunate to have enough funds in your 529 plan to cover the expenses for college. If this is the case, it may be time to reduce the risk in your 529 plan now that you need to begin withdrawing the funds to cover expenses. To encourage families to continue saving & investing, many 529 plans have added investment vehicles such as CDs or money market funds to their 529 line-ups. Keep in mind by moving to a more conservative option, you may forgo some earnings opportunity, but with interest rates above 4% in most money market funds, you’ll still earn a decent amount of interest and you’ve removed the risk of losing money.
If you find yourself in the position where you’ve saved the needed funds and the university or college your child is attending has the cost of tuition frozen, then it may make sense to tamp down the risk. Contact us to determine if it’s the right time to remove some risk from your 529 plan.