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Time to review 529-plan strategy

Posted: 2010-01-01 - Lori Johnston is a freelance writer in Georgia

by Lori Johnston

To start the New Year, take a deep breath and a fresh look at your 529 plan strategy.

It should be in better shape than this time last year, and if you didn't re-evaluate it in 2009, now's the perfect time to analyze your totals, contributions and risk exposure.

Financial experts recommended five ways to try to make the most of your contributions now and in the future.

  1. Develop, or rework, your family education plan.

    It's crucial to determine as a family what type of financial assistance you want to provide your children, and to consider that while investing in a 529 plan, says Tim Maurer, director of financial planning for Hunt Valley, Md.-based Financial Consulate. You could decide to pay for whatever school they choose, or pay for an in-state university, with anything beyond that becoming the child's financial responsibility. Or you might decide to save enough to pay for two years of school and have the child handle the remaining years. If your children are old enough, involve them in this discussion, says Maurer, a member of the National Association of Personal Financial Advisors.

  2. Set your savings goal.

    Use our online calculators to get an idea of how much you need to put away to pay for a certain percentage of college costs, and it doesn't hurt to do that annually. Joe Hurley, a certified public accountant and founder of, says people typically shouldn't be shooting for 100 percent, but should set a reasonable goal. Paying for 50 percent of college expenses is a common goal, Maurer says.

  3. Evaluate your time horizon.

    Think about your child's, or the beneficiary's, current age and look at the exposure to risk, says Peter Mazareas, vice chairman of the Washington, D.C.-based College Savings Foundation. "Start the year with an evaluation of (your) portfolio," he says. The time horizon is a significant factor in any investing, and Maurer says some parents don't realize that saving for college is a shorter time horizon for returns than they believe. He would recommend erring on the more conservative side, particularly as your children enter middle and high school.

  4. Reconsider your plan.

    Compare your plan to others, and discuss with your adviser whether you are actually in the right plan. "If 529 participants are in a program that is not satisfactory -- that is in the lower quartiles in terms of ratings or performance -- or if they're just disappointed with it, they should understand that there's no tax consequences to having a roll over from one to another," says Mazareas, CEO of Nahant, Mass.-based Strategic Advancement Group.

    Maurer says parents need to look at whether their adviser will be compensated for the plan you are investing in. "They need to ask their adviser a difficult question: Am I in this plan because it is good enough and compensates you or am I in this plan because it is the best for me?" he says. New plans aren't added often, but Hurley notes that fee changes and new investment options are made frequently to existing plans. Two changes per beneficiary were allowed for 529 investments in 2009, and it appeared one change per beneficiary would be allowed in 2010.

  5. Set up regular contributions.

    If you have been putting money into a 529 plan annually or when you have extra funds in the bank, make a decision to contribute every couple of weeks or month. "Folks that save systematically save substantially more on a regular basis," Mazareas says. The College Savings Foundation found that 20 percent of parents used an automatic savings strategy, and of those, 63 percent saved more than $5,000 per child and 35 percent have been able to save between $100 and $300 per month. You'll also want to consider contributing more than you did in 2009, which could result in bigger savings down the road. "Folks need to recognize that most of the financial aid these days tends to be loans as oppose to grants and free money," says Mazareas. "The more they put in, the fewer loans they'll have to take out later on."

Posted January 1, 2010

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