Many parents use 529 plans to save for college costs. Earnings are tax-free and so are withdrawals, if the money is used for higher education.
Many parents choose the age-based option. With this arrangement, a young child’s college fund is largely invested in stocks, for long-term growth. As the child grows older, the college fund holds fewer stocks and more bonds, for income and safety.
If you are interested in such a plan, be aware that an "age-based option" often consists of three options: aggressive, moderate, and conservative. There may be huge differences in these three asset allocations.
With the aggressive option, for example, a high school senior may have a 40 percent allocation to stocks. The same 529 plan’s moderate option might have only 20 percent in stocks, for the same student, while the conservative option has no stocks at all for a child age 16 or 17.
Therefore, you should look closely at the specific option you’re choosing, if you want an age-based 529 investment plan. Be sure it fits in with your risk tolerance. Another tactic is to skip the age-based option and choose your own investments inside a 529 plan, moving money when you believe shifts are appropriate.
