College savers have a little more flexibility inside their college savings plans thanks to a 529 rule change for 2015. The Achieving a Better Life Experience (Able) Act was signed into law by President Obama last year. It allows 529 account owners to change up their investment selections twice per year. Previously, investment changes could only be made once per year with an exception for new contributions.
The question then is, what should you do with this new freedom? While this change is welcomed by investors, the real answer is that, no, you shouldn’t be making any changes to your 529 plans based on the new rule. Previously, you would most likely be making changes to your 529 plan once per year based on your beneficiary (the child’s) age. However, most of the plans I’ve seen here in the great State of Iowa are set up on automatic age based portfolio with Vanguard and accont owners are only updating their investment when they make deposits.
The wrong reason to get excited about this change would be because you’re nervous about the stock market and want to reduce your exposure. That’s fine, but then you’re out of the market for the next six months! This not a realistic way to manage the account.
The most reasonable reason to change your allocation is that your 529 plan’s beneficiary is approaching the period of time when they need to withdraw and you want to move into a more conservative asset mix. This is the scenario where having multiple times per year makes the most sense as a student could be enrolling in fall or the spring.
For the majority of 529 account owners this change is mostly a ‘feel good’ rule change. Americans love their freedom and I think having the ability to make investment changes makes investors feel slightly better about their college savings plan. With or without the change, the plans still offer enough flexibilty for most situations. And don’t forget that you are allowed to update your investment mix when you make a contribution, so keep saving! We all know college isn’t getting any less expensive.
Disclaimer: 529 plans comes in many different shapes and sizes depending on the state sponsoring the plan. Investors should consider the expenses, charges, and tax implications before starting a plan. This post is for information only and is not investment advice or a solicitation to invest.