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COLLEGE SAVINGS 101

Savingforcollege.com's age-based allocation study
http://www.savingforcollege.com/articles/savingforcollegecoms-age-based-allocation-study-sept-2009

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.

15% or more in stocks

T. Rowe Price uses a moderate approach in the programs it manages for Alaska and Maryland. Beneficiaries in college have 20% in stocks.

Fidelity Investments manages direct-sold 529 plans for Arizona, California, Delaware, Massachusetts, and New Hampshire. All offer an actively-managed age-based option and an index-fund age-based option. Either way (active or index), a beneficiary who is in college will have at least 20% invested in stocks, while those in the next youngest group (Portfolio 2009) will have as much as 24% in stocks.

West Virginia has two direct-sold plans. The WV Select program, using funds from Dimensional Fund Advisors (DFA), keeps 20% in stocks at age 19, as does the WV Direct program, using Hartford Funds.

TIAA-CREF age-based models vary among the eight states they manage. In Connecticut and Georgia, where two risk levels are offered, and in Mississippi and Oklahoma, where a single track is offered, the allocations never go below 20% in stocks. The single-track options in Kentucky, Minnesota, and Vermont are slightly more conservative, with 15% in stocks at age 18, while Michigan offers three risk levels, one matching Minnesota, one slightly more aggressive, and one slightly more conservative.

Rhode Island opts for a relatively high weighting in stocks, even for beneficiaries in college. In the Growth age-based option, beneficiaries born before 1993 have 35% in stocks, while the Aggressive Growth age-based option has 40% in stocks. Rhode Island's plan is managed by AllianceBernstein.

The direct-sold 529 plans in Indiana (Upromise Investments), New Jersey (Franklin Templeton), and South Carolina (Columbia Management) all offer a single age-based track with low-to-moderate stock exposure ranging from 15% to 25% for older beneficiaries.

Wide ranging allocations

Some plans offer 4 or more risk levels from which to choose. Iowa's plan, managed by Vanguard, offers four choices ranging from a moderate allocation in Track A to a very conservative allocation in Track D. The College Savings Plan of Nebraska, managed by Union Bank and Trust, has a similar range in its set of four risk levels.

Ohio's Vanguard age-based option comes in three relatively-conservative risk levels very similar to those found among Upromise-managed programs in other states. Ohio also offers a Putnam-managed age-based option. The Putnam options have significant variation in stock exposure among its three risk levels.

The 529 plan in North Carolina offers the extremes in age-based modeling. With one year to go before college, the Seligman-managed portfolios in North Carolina have 52% in stocks, dropping to 38% for college freshman, and ending at 24% for college sophomores and older. North Carolina also offers The V Fund options (V presumably stands for Vanguard) with three risk levels, the most conservative level having 0% stock exposure at age 18 and the aggressive and moderate levels having 25% stock exposure at that age.

Utah's five risk levels are even more diverse. While the most conservative level (Option 9) has no stock exposure beginning at age 16, the most aggressive level (Option 3) has 75% in stocks at age 16 dropping to 65% for beneficiaries in college.

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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