What kind of investment options does a 529 plan offer?
Every plan offers a different set of investment options, featuring different investment managers. Two of the most common options are age-based and individual portfolios.
Age-Based: If you prefer a simplified approach to investing, you can invest in a pre-determined series of investment portfolios that automatically change over time as the child nears college-age.
Individual Portfolios: Many plans offer a menu of portfolios with different security mixes. You can allocate a percentage of your investment in the portfolios that meet your specific investment goals, including your risk tolerance and time horizon.
Savings Portfolios: Some plans offer a Savings portfolio. These portfolios invest their assets in a security such as a high-yield savings account.
Are 529 plan investments mutual funds?
No. The portfolios offered by 529 plans are municipal securities and are not mutual funds. Your investment buys shares or units of the portfolio.
Are investments in a 529 plan guaranteed?
As with many investment types, a 529's returns are not guaranteed and your account value will fluctuate with market performance. Except to the extent of FDIC insurance available for 529 plans that offer an FDIC-insured portfolio that you invest in, you could lose all or a portion of your money, depending on market conditions. Keep in mind that the holding period for college investors is short (generally 5 to 20 years), and you should consider investing more conservatively as the time approaches for you to begin making withdrawals. Before you select an investment option, you should carefully consider your investment time horizon and risk tolerance.
Can I make an investment change in my account?
You can change the direction of your future contributions at any time. Under the federal tax rules governing 529 plans, you can reallocate your investments once per calendar year or when you change the account's beneficiary, without incurring taxes.
If I'm invested in an age-based investment option, do I need to do anything as my beneficiary gets closer to college age?
One of the great things about the age-based option is that you don't need to keep rebalancing the portfolio. Investments in any of the age-based options will automatically change over time as your beneficiary ages, shifting automatically from more aggressive investments when the beneficiary is younger to more conservative investments as the beneficiary approaches college age.