Retirement & Financial Planning Report

When it comes to saving money for higher education, 529 plans are a popular choice. Inside these plans, investment earnings aren’t taxed. Moreover, earnings are tax-free if they’re withdrawn to pay for college costs such as tuition plus room and board.

Many parents are reluctant to make their own investment decisions so they choose an age-based option. With these portfolios, young children have a sizable allocation to stocks, for long-term growth potential. Gradually, older students’ portfolios shift to bonds and cash so there will be less risk when college bills are on the horizon.

However, age-based options vary widely, from one state’s 529 plan to another’s. In many states, there are conservative, moderate and aggressive portfolios within their age-based plans.

A conservative portfolio might have no stocks for young teens while the aggressive version could have a 40% exposure to equities when students graduate high school.

If the age-based concept appeals to you, look carefully at the various portfolios. Don’t invest unless you’re comfortable with how your money will be invested. If you prefer, you can pass up the age-based plan and actively manage the funds in your student’s 529 accounts, so you’ll have more control over the amount of risk you’re taking.