The Best 529 Plan Investments Based on a Child’s Age

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Kathryn Flynn

By Kathryn Flynn

June 26, 2019


It’s never too early or too late to start saving for college, but your mix of 529 plan investments should depend on your child’s age. Parents with younger children can focus on growing their college savings by investing more aggressively, since they have enough time to absorb risk. As the beneficiary gets closer to college age, 529 plan investments should steer toward lower-risk investments, such as bonds, CDs and money market funds. 

Parents should review their 529 plan investment options periodically to make sure they are still on track to meet their goals. With only 18 years from birth to college, your investment objective may change quickly from growth to preserving capital.

Best 529 plan investments for beneficiaries newborn through age 5

Parents with young children should consider using an age-based asset allocation. Most direct-sold 529 plans offer age-based portfolios, which generally start out invested in equities (stocks) and automatically shift toward more conservative fixed income assets as the beneficiary gets closer to college.

Age-based 529 plan portfolios appeal to parents who prefer to “set it and forget it.” They are a good place to start for parents who are new to saving and investing, since the investment risk is managed by the 529 plan.

New parents should also look for 529 plan investments with a low expense ratio, which is an annual fee based on a percentage of the assets in your 529 plan account. For example, if you have $10,000 invested in a 529 plan with a 0.50% expense ratio, you would pay $50 in fees. But, if the 529 plan had an expense ratio of 0.15% you would only pay $15 in fees that year.

The initial $35 difference in fees may not seem like a lot at first, but it will add up over time. As your account balance grows, the annual amount you pay in fees will be higher since fees are based on a percentage of your assets. By spending less on 529 plan fees, you are able to invest more for college.

If you are using an advisor-sold 529 plan, pay attention to the share class that your financial advisor recommends. Most advisor-sold 529 plans are sold as Class A shares or Class C shares. According to FINRA, Class A shares are a more cost effective option when the beneficiary is under 12 years old, since they have an upfront sales charge with a lower annual expense ratio.

Class C shares do not have an upfront sales charge, but they have a higher annual expense ratio. Class C shares are more suitable for parents with children in high school or parents who are using a 529 plan to pay for K-12 tuition. These families should avoid paying the upfront sales commission since there is less time over which to amortize the cost of the commission.

Best 529 plan investments for beneficiaries in elementary and middle school

Once your child enters elementary school, it’s a good idea to benchmark your college savings progress. Parents who are coming up short of their goal may want to invest more aggressively.


To determine how much you should have saved, multiply your child’s age by:

  • $3,000 for an in-state public 4-year college
  • $5,000 for an out-of-state public 4-year college
  • $7,000 for a private non-profit 4-year college 

If you find that you’re coming up short, you may consider increasing the equity allocation in your 529 plan portfolio. According to a 2018 study by Mark Kantrowitz, increasing the equity allocation from the typical 80% (found at the start of many age-based portfolios) to 100% yields greater returns without adding significant investment risk.

To increase your equity allocation, you can switch to an age-based allocation with a more aggressive mix of investments or consider switching all or part of your investments to a static portfolio that is invested in 100% equities. Parents may make two 529 plan investment changes per year.

Best 529 plan investments for beneficiaries in high school

With a shorter investment time horizon, parents of high school students should be more risk-averse when selecting 529 plan investments. Consider lowering your equity allocation to 20% or 30% and investing the remaining 70% to 80% in fixed-income portfolios consisting of bonds, CDs or money market funds. Some 529 plans offer FDIC-insured investment options, which are a good option for families who are looking to protect their principal investment within a short time period.

It’s important for parents to be more risk-averse as their child gets closer to college. If the stock market were to drop significantly within the next four years, they may not have enough time to recoup the losses in their portfolio and could fall short of their savings goal.

Parents of high school and college students should contribute to an in-state 529 plan if their state offers a state income tax benefit for 529 plan contributions. For older students, a state income tax benefit offers a greater benefit than lower-fees offered by an out-of-state 529 plan.



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