Choosing your 529 plan investments

When you enroll in a 529 plan, one decision you'll have to make is how your contributions will be invested.

• Every plan offers its own type of investments from which you can choose.
• Details about the investment portfolios are often available online at the plan's website; they're also always available in the plan's enrollment kit. Be sure to read the plan's offering documents carefully before making an investment decision.
• It's important to read this information carefully so you can make an educated selection.
  

Investing in a 529 plan
A 529 plan lets you invest in a portfolio - or several portfolios - that are managed by a professional investment management company. Here are some things to keep in mind:

• These portfolios are municipal securities, not mutual funds. However, the portfolios themselves can invest in mutual funds.
• It's important to understand that when you invest in a 529 plan you are buying units of the portfolio that the plan offers - not shares of a mutual fund or a single stock or bond.
• 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.

Types of investment portfolios
A 529 plan generally offers several different types of portfolios in which you can invest, including age-based and individual portfolios.

Age-based portfolios: Want to make a single decision and let the experts take care of your portfolio? If so, you might prefer this option.

• An age-based portfolio is a one-step investment that's based on the student's age.
• If a child is young, the portfolio is generally invested in more aggressive securities like stocks; as the student gets closer to college-age, the portfolio is automatically adjusted to become more conservative.
• This re-allocation occurs automatically, so you don't have to make individual investment changes.

Here's an example of how an age-based portfolio might shift as a child reaches college age:

 

Individual fixed-asset portfolios: Want to play an active role in deciding how your money is invested? You might consider this option.

• An individual portfolio generally invests in underlying investments that hold a specific type of security (e.g. stocks, bonds, or money market securities).
• You decide what portfolio - or portfolios - represents your risk tolerance and time horizon (the number of years you'll be investing). Make sure you carefully consider your investment time horizon (how long until you'll need the money for school) and risk tolerance.
• When you've chosen your investment mix, it will stay the same until you decide to change it; it will not change or rebalance automatically.
• You may want to consult a qualified financial advisor to be sure you understand the risks associated with actively managing the money in your Plan.

Here is an illustration of the kinds of individual portfolios that might be offered in a 529 plan and how they fall on a risk spectrum: