529 Plan Details:
Enter your state:
World's Simplest College Calculator:
How old is your child?
Find a 529 Pro:
Enter your zip code:
Enroll In a 529 Plan:
'Safe' 529 options may lag inflation
If I invest in a 529 college savings plan, is my principal protected from stock market losses?
-- M. Flores
Not necessarily. Most investment options in 529 plans can go up or down in value, just like investments in your IRA or 401(k). The state sponsoring the 529 plan does not guarantee your account against losses.
However, recognizing that a significant percentage of families do not want to risk their college savings to the stock market, nearly all 529 savings plans now offer some type of principal-protected or stable-principal option.
These options can include money market funds, certificates of deposit, guaranteed-investment contracts and stable-value investments.
Here are a few examples of the "safe" options you can find in 529 savings plans.
- Ohio's CollegeAdvantage 529 plan offers FDIC-insured savings accounts earning 2 percent annual percentage yield, or APY, (as of April 2008) with no minimum balance, and certificates of deposits ranging from three months to 12 years with APY of 2.25 percent to 4 percent with a $500 minimum.
- CollegeSure CDs from College Savings Bank are offered through the Arizona and Montana 529 plans. These are also FDIC-insured up to $100,000 per depositor and are available in maturities from one to 22 years. Your interest rate is pegged to a national index of private-college tuition increases (less a 3 percent margin) not to go below 2 percent. While you can be certain your investment will not keep up with tuition inflation -- you give up that hope with just about any safe option -- consider that 2007's tuition index posted a 6.02 percent increase. Under the CD's current terms, that would have translated to a 3.02 percent crediting rate.
- College Savings Bank recently introduced the InvestorSure CD through the Montana 529 plan. You receive at least 85 percent of the increase in the S&P 500 Index over the term of the CD. If the value of the S&P 500 declines over the investment period, you receive your full investment back at maturity.
- TIAA-CREF makes a principal-protected option available in the 529 plans it manages. For example, the Guaranteed Option in Minnesota's 529 plan is yielding 3.25 percent through March 31, 2009, and will never go below 3 percent. There is also no minimum holding period, so you can put the money in today and take it out again in a month.
- In a 529 prepaid tuition plan, your investment return is not directly tied to the market. The plan promises to pay a certain level of benefits regardless of market conditions. Several states offer a prepaid tuition plan to residents, or you can consider the Independent 529 Plan run by a consortium of more than 270 private colleges.
These examples are for illustrative purposes and are not investment recommendations. Make sure you understand the fee structure of any of these investment products, as fees can have a significant impact on your returns.
Remember, you may have to allocate at least a portion of your savings to higher-risk investment options to have a better chance of keeping up with college inflation.
Other recent questions»Top 529 Plan Withdrawal Tips. (Video) (03/30/2017)
»What are the 3 biggest 529 plan myths? (Video) (03/17/2017)
»Does a 529 plan affect financial aid? (Video) (03/16/2017)
»How much does college cost? (Video) (03/15/2017)
»What Are The Top 7 Benefits Of 529 Plans? (Video) (03/14/2017)
»529s and Financial Aid (Video) (11/19/2014)
»What are the best ways to maximize the savings in my 529 plan? (Video) (10/14/2014)
»What are the steps involved in setting up a 529 account? (Video) (09/15/2014)
»What is the first step in getting started with a 529 plan? (Video) (09/05/2014)
»Coverdell ESA vs. 529 Plan: Which to choose? (Video) (07/15/2013)
»What is the best 529 plan for me? (Video) (07/10/2013)
»What happens to my 529 if my child gets a scholarship? (Video) (07/02/2013)
»Can grandparents open a 529? (Video) (06/20/2013)
»Do I have to use my own state's 529 plan? (Video) (06/12/2013)
»529 Plans: Tax Benefits of a 529 Plan (Video) (06/07/2013)
»What are the Pros & Cons of 529 plans? (Video) (05/30/2013)
»What is a 529 College Savings Plan? (Video) (05/21/2013)
»Expected addition to the the family (04/16/2013)
»Naming a successor to your 529 account (Video) (05/11/2012)
»Finding the Right Coverdell ESA (Video) (09/16/2011)
My College Savings
Help us personalize our site for you.