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529 Investment Strategy by Age


College tuition climbs every year, and for many families, this poses a financial challenge. Even for students targeting a public, in-state institution, fees and tuition average around $10,338. That average jumps to $38,185 for private education. One way that American families prepare for these costs is through a 529 college savings account. And as a result, these estimated 15 million families have amassed around $464 billion collectively, according to Bloomberg and data from the Federal Reserve.

As an investment vehicle, 529 plans help you build your funds. Here’s an idea of how the investing strategy for one may adjust based on the beneficiary’s age. For more help, consider working with a financial advisor.

What Is a 529 College Savings Account?

A 529 college savings account, sometimes just called a 529 plan, is a type of investment account. With it, you can pay for qualified expenses related to your or your beneficiary’s education. The account is also tax-friendly. You can withdraw your account earnings tax-free as long as you use them for qualified expenses. That includes costs such as books, tuition, class fees and room and board.

If you use your 529 plan earnings for costs outside that, though, you may get hit with income tax as well as a 10% penalty fee. However, this fee can sometimes be waived, such as in the case of a death, a disability or if the student earned a tax-free scholarship.

The tax advantages are appealing, but 529 plans also have other perks. For example, if the beneficiary chooses not to go to college, you can change the beneficiary or pass unused funds to another. Although, that money will still be subject to the same use rules.

Almost all states sponsor their own version of a 529 plan, with some including additional benefits like a tax credit. And you don’t have to stick to just your own state’s plan; you can shop around.

529 Investment Strategies

529 investment strategy by age

These tax-advantaged college savings plans typically offer a selection of investment strategies so parents and grandparents can find one that best fits their goals, timeline and risk profile. Here are three common 529 investing strategies:

  • Age-Based Asset Allocation: An investment portfolio that adjusts its asset allocation according to the beneficiary’s age.
  • Objective-Based Asset Allocation: A portfolio that reflects your desired potential return and the amount of risk you can take.
  • Customized Allocation: A portfolio, or a combination of portfolios, that vary in their strategy.

Almost every state offers its own 529 plan. Each one comes with its own rules about tax benefits, minimum contributions, fees and more. Here is New York’s age-based plan to give you an idea of how age-based investing options can work with a 529 account.

Example of Age-Based Portfolios for a 529 Plan

AgeConservative Age-Based Asset AllocationModerate Age-Based Asset AllocationAggressive Age-Based Asset Allocation
0-462.5% stocks/37.5% bonds87.5% stocks/12.5% bonds100% stocks
5-650% stocks/50% bonds75% stocks/ 25% bonds87.5% stocks/ 12.5% bonds
7-837.5% stocks/62.5% bonds62.5% stocks/37.5% bonds87.5% stocks/12.5% bonds
9-1025% stocks/75% bonds50% stocks/50% bonds75% stocks/25% bonds
11-1212.5% stocks/87.5% bonds37.5% stocks/62.5% bonds62.5% stocks/37.5% bonds
13-1475% bonds/25% short-term reserves25% stocks/75% bonds50% stocks/50% bonds
15-1650% bonds/50% short-term reserves12.5% stocks/87.5% bonds37.5% stocks/62.5% bonds
17-1825% bonds/75% short-term reserves75% bonds/25% short-term reserves25% stocks/75% bonds
19 and higher100% short-term reserves75% bonds/25% short-term reserves12.5% stocks/87.5% bonds

Above, you have an example of an age-based portfolio. In this scenario, your asset allocation automatically adjusts over the course of the child’s life. It’s often the better fit for portfolio owners who want modest returns without high risk.

What is a Static 529 Savings Plan?

With a static 529 plan portfolio, there is a specific investing objective in mind. For example, you may want your portfolio to prioritize aggressive growth. As a result, the portfolio’s asset allocation is shaped toward that goal. The fund allocation then remains the same over the plan’s life. You can alter the division of investments; however, it must be done manually. Because of this, a static portfolio may be best for investors with experience.

Static portfolios can include target risk portfolios and individual portfolios. The former targets a predetermined level of risk, whereas the latter mirrors an underlying investment such as a mutual fund.

How to Compare 529 Plan Options

If you’re considering a 529 plan, you need to find the right one for your financial goals and risk tolerance. For example, one state’s age-based plan may have you invest a significant portion of funds into stocks while the beneficiary is in college. That might make sense for someone who wants higher returns in exchange for greater risk because they started saving later. But that won’t work for everyone. Each plan can vary drastically, so it’s important to do your research.

One way you can compare your 529 plan options is’s online tool. It helps families review individual plans based on factors like performance and fees. Vanguard also has a 529 plan comparison tool that allows you to compare up to 3 different plans at a time.

Overall, when looking for the right 529 plan, consider a few factors, such as:

  • Tax benefits
  • Investment strategy
  • Fees (i.e., account maintenance, investment, management)
  • Accessibility of information
  • Direct-sold plans vs. advisor-sold plans

Is a 529 Investment Strategy Right For Me?

529 investment strategy by age

A 529 college savings account can be a smart way to save up for college. In particular, its tax benefits give it a leg up on a normal brokerage account. Your money grows on a tax-deferred basis, and your withdrawals stay tax-free as long as you use the funds for qualified education costs.

However, it’s not a perfect solution. There are penalties if you use your money for non-qualified expenses. Not only that, there are also fees to pay, which vary depending on the plan. In addition, investment choices are limited. As the account owner, you must select from investment options offered by the 529 savings plan you choose.

If you’re not sure how financial aid may factor into your future college cost, consider calculating a few estimates. You’ll need to account for factors like various types of federal aid, your and your child’s age, educational costs, inflation and more. If you have an idea of how much your education may run, it can help you decide whether a 529 plan suits your needs. It can also give you a savings goal to work toward.

The Takeaway

529 plans are a solid recommendation for many families as an investment vehicle. There are many options, which gives you flexibility, and they come with tax advantages. However, the college experience (and its costs) is different for everyone. You may need a different saving strategy for your future student.

If you need help starting your savings journey or adjusting your current strategy, consider reaching out to a financial professional. They can help you plan for education costs, estimate financial aid or plan a budget.

Tips for Managing a 529 plan

  • The best 529 plan for you will depend on various factors like your finances, the beneficiary’s age and more. If you need help searching through your options, consider consulting a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • You don’t have to limit yourself. You can invest in more than one type of plan – even ones out of state. If you want to see your options, check out our review of the 529 plans across the U.S. It can give you some insight into their benefits and features.

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