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7 things every 529 investor should do this year

Posted 2012-06-29


A Section 529 college-savings plan can be the ultimate "set-it-and-forget-it" investment vehicle.

If you choose your 529 plan's age-based investment option, your underlying investments are periodically--and automatically--adjusted to an appropriate allocation based on the age of your child or number of years to expected college matriculation. And until the year you begin taking withdrawals, there are no dividends, interest, or capital gains being thrown off, and no Forms 1099 to deal with.

However, sitting back and ignoring the 529 account you set up for your child or grandchild until he are she reaches college age is not the best approach. You should be a bit more vigilant and hands-on with it. Here are 7 things for you to do this and every future year:

1. Open your mail

States are constantly making changes to their 529 plans and those changes are typically communicated to current investors through correspondence, newsletters, and updated plan disclosure documents. Investment options may be added or eliminated; fees and expenses may change; and occasionally the outside program manager is replaced by another firm, leading to an entirely new set of investments. Rarely are you required to take any action--even if investments are changed your account is automatically "mapped" over to the new investments--but you may want to make a change based on what is happening in your 529 plan. Open the mail you receive from your 529 plan and determine if important changes are occurring that warrant further attention.

2. Consider switching investment options

Your 529 plan's age-based investment option is an appropriate choice for those who do not have a specific reason for selecting one of the plan's "static" investment options. But consider carefully if you are better off with a static option. For example, one of the plan's fixed-income options may be better for the parent who already owns plenty of stocks and stock-heavy mutual funds outside of a 529 plan. The fixed-income investments in the 529 plan may help balance out your overall investment picture and, because of the type of income it earns, takes fuller advantage of the tax benefits of the 529 plan.

If you choose to use one or more static options, you will want to review them periodically to make sure you remain comfortable with your choice. You can switch among the investment options in your 529 plan, but only once in any calendar year. Don't delay your review until January of next year when a change might be called for this year.

3. See where you are at with your college savings

Are you on track to meet your college savings goals? Has the investment return in your 529 plan kept pace with increases in college tuition and other student expenses? It doesn't take long to get a snapshot of where you are at with your college savings. Simply type in your child's age at's World's Simplest College Cost Calculator and adjust the assumptions for your particular situation. Remember to set reasonable expectations--most parents are doing great if they get on track to cover one year at a private college--and instead of trying to reach your goal by the time your child turns 18, plan to continue your contributions through his or her college career.

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