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My 529 plan was too aggressive, now what do I do?

Posted by Cheryl Costa  December 31, 2008 10:39 AM

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I goofed, and have too much in equities for our son who will be starting college in Fall 2010 (our 529 mix is 50/50 stocks and bonds). Our portfolio is down 35%. Should I make our once a year change quickly, and move to safer instruments (realizing I'll never make up some of that money) or ride it out, hoping I can make up some of that loss?

This is tough one. I understand your desire not to lose any more money because your son will be entering college in a year and 9 months but my vote would be to stick it out with the mix as is (at least for a little while) and hope that we see a nice recovery in 2009.

This would be especially true if your son's education was not already fully funded. For example, if you have only two years of college expenses saved in the 529 plan, you could earmark the account for the expenses you will be paying in the fall of 2012 or 2013 when your son is a junior and a senior. Surely, by then there is a much better chance that your account would have recovered and hopefully increased in value.

This isn't to say that you shouldn't be making any changes to the portfolio between now and the time you make your last tuition payment. The portfolio should become more conservative as your son approaches and enters college, but you can do that gradually. In one piece of good news, the IRS and the Treasury recently announced that they will allow two changes in investment strategies in a 529 plan in 2009 and these two changes are in addition to the change permitted when there is a change in designated beneficiary. To learn more about this new development, visit this IRS website.

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