It’s also important, advisers say, to understand the details of how your 529 portfolio shifts holdings from stocks to bonds over time. Some plans may move money relatively abruptly, often around a child’s birthday, which can hurt returns if the move comes when the stock market is down. It’s preferable, and common, for plans to make the shift more gradually to reduce the risk of locking in losses.
Despite roiling financial markets and economic woes, there hasn’t been an apparent rush to withdraw money from 529 accounts, plan representatives say. But it’s also because families still see a need to save for college, despite near-term uncertainty about a move to online classes because of the coronavirus. That’s partly because if people spend the money for a noneducational use, they face income taxes and a 10 percent penalty on the earnings portion of the withdrawal.
“Nothing, in my mind, has changed significantly to make me want to adjust our strategy,” said one investor, Steve Blackmarr, a senior manager with Amazon Business Professional Services. He considers college savings a long-term investment, he said, and intends to keep saving for his children, ages 9 and 11.
Peg Creonte, head of government savings at Ascensus, which administers 529 plans in 26 states and the District of Columbia, said that while one-time contributions had fallen compared with last year, scheduled contributions mostly weren’t affected. “We did not see any sort of panicked reaction,” she said.
Utah’s my529 plan saw new accounts increase in early May, to 29 per day this year from about 16 per day last year, said Bryn Ramjoue, the plan’s marketing director.
Alaska 529 has seen a “moderate” increase in people moving funds into less risky investments, said Lael Oldmixon, the program’s executive director. (Tax rules allow 529 participants to change their current investment options twice each year.) But she said people are not making major changes. “Families don’t want to touch that money.”
Here are some questions and answers about 529 accounts:
Cash is tight. Should I stop contributing to my 529 fund?
That depends on your circumstances. Andy Mardock, a financial planner in Bend, Ore., said clients typically placed a high value on college savings. But if someone has a loss of income, he said, and is faced with tapping emergency funds or using a credit card to cover basic bills, “the clear answer is to cut 529 contributions.”
Article source: https://www.nytimes.com/2020/05/29/your-money/college-529-plan-coronavirus.html
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