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COLLEGE SAVINGS 101's age-based allocation study

Posted: 2009-12-04

The following is a recap of the age-based approach for older beneficiaries (ages 17 and up) in direct-sold 529 plans. The summary groupings are based on the allocation to stocks for the final step of the age-based progression, i.e. for the oldest beneficiaries. Please note that this discussion does not focus on the split between bonds, money market, and other types of fixed-income investments, although the choice of fixed-income investments will also influence the risk profile of the portfolio. You can also view current detailed data by plan.

Under 15% in stocks

Louisiana and Florida have two of the lowest-risk 529 plans, with the stock percentage set at 0% for beneficiaries age 16 and older. Virginia's VEST program moves to 0% in stocks at age 19. All three plans are internally managed by state agency.

Wisconsin's EdVest 529 plan is managed by Wells Fargo and offers three different risk levels, each with a 0% allocation to stocks for in-college beneficiaries.

Many of the direct-sold 529 plans managed by Upromise Investments adopt a very conservative investment approach for older beneficiaries. Plans in Arkansas, Colorado, Idaho, Nevada (Upromise 529), Nevada (Vanguard 529), New York, and North Dakota all follow the same formula: a choice between three risk levels where beneficiaries age 19 and older have 0% stock exposure whether they are in the aggressive level, the moderate level, or the conservative level, and even beneficiaries as young as 16 are completely out of the stock market unless they've chosen the aggressive level. Upromise-managed plans in Missouri and Pennsylvania also offer three risk levels but the aggressive and moderate levels provide a bit more exposure to stocks. Hawaii's Upromise-managed plan offers a single age-based track with accounts allocated 0% to stocks, 75% to bonds, and 25% to money market beginning at age 16. The USAA College Savings Plan keeps 10% in stocks for beneficiaries 18 and older.

Van Kampen's approach in Alabama is relatively conservative, with only 5% in stocks for those within one year of college. Interestingly, Alabama's plan offers three different risk levels, but all three options apply the exact same allocation for beneficiaries within three years of college.

OppenheimerFunds manages four direct-sold plans. Its programs in Illinois (Bright Start), New Mexico and Texas invest 10% in stocks beginning at age 18. Oregon has 0% in stocks for in-college beneficiaries.

In the Kansas Learning Quest program, managed by American Century, three different risk levels are offered plus an index-fund track. In all four options, the allocation to stocks drops quite precipitously from 30-50% at age 17 to 0% at age 18. Kansas' Schwab 529 also offers 3 risk levels and they also have 0% in stocks at age 18, although the shift is more gradual.

District of Columbia (Calvert) reduces its stock allocation to 13% at age 17 while South Dakota (Allianz) reduces its stock allocation to 8% at age 19. Maine (Merrill Lynch) gets down to 5% in stocks but only when the beneficiary reaches age 20.

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