The Strategy Behind Investment Allocation for 529 Savings Plans

 529 plans can be a great way for families to create college tuition savings for their students.  Not only do the plans benefit students, they also carry advantages for donors. Benefactors can enjoy tax-deferred growth with federally tax-free distributions (when distributions are paid directly to the beneficiary’s college).  Donors have complete control of the account, they are allowed to make substantial deposits, and there aren’t age restrictions or income limitations to inhibit investing.  It’s no surprise 529 savings plans have become popular over the years.

Age-Based 529 plans

Ever wonder how 529 college savings plans are invested to meet timely tuition needs?  Age-based 529 savings plans are a helpful place to gain insight.  The graph below shows an example of the glide path of equity allocation for age-based 529 savings plans from 2010 to 2013.


According to this chart, we see the following:

  • Generally, 80% of the portfolio is invested in equities at age 0 and reduces to 10% by the time the beneficiary is enrolled in college. 
  • Since 2010, plan investment managers have become more conservative in the beginning (age 0) and end (age 19) stages of plans.
  • Investment managers have become 6-7% more equity aggressive during ages 5-15 to meet tuition goals. 

529 Managers Make More Aggressive Move

To meet the tuition needs of students in adequate time frames, the graph trend reveals that investment managers are becoming more aggressive during the middle of a student’s investment time horizon, but they are also growing more cautious about preserving money closer to the end of the student’s investment time frame.  Interestingly, the graph also reveals that investment managers still rely on bonds as one of the safest places to preserve money (90% of the portfolio by age 19) despite the negative reputation bonds have received in our current rising rate environment.

As always, we are more than willing to support your investment needs.  If you have questions about 529 plans or are considering adding one to your investment strategy, don’t hesitate to reach out; we’d love to help.

Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of an investment in a 529 plan before investing. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-035968