This was the title of a Wall Street Journal article a couple months back. At first glance, it seemed to me this should be no different than our 401(k) accounts which have all taken a beating over the past couple years. But there are two major differences. A 529 account typically has a target date, where you tell the sponsor when college starts, and the investments are adjusted accordingly. The second major difference is the finite ending date. You see, while a 60 year old may only have 2-5 years to the start of retirement, the end is a good 25 years away. When saving in a 529 account, since the funds may only be used for higher education, for most people withdrawals are only made over a 4 or 5 year period. So as this article suggests, a student 1-3 years from entering college should not have 40% of his funds in stocks, as the state of Oregon’s plan allocates. If you have a 529 account for your own child, check the prospectus and understand exactly how the funds are invested.
Joe
I have a 529 from NM and got bitten by the market slump, though not as badly as the market (-17%), probably because my savings were in the senior high-school years. Yet, the fund is suing the administrator, Oppenheimer, because of it. Apparently, even though the allocation wasn’t heavy in stocks, it seems that the corporate bonds allocation floundered much more than other similar funds.
I’m glad you are shedding some more light on this subject, because it’s truly a travesty. As I mentioned in my post on the same subject back in March, another major difference between the college savings plans and a similarly structured retirement plan is that with a retirement plan you’ve got some flexibility on when you start withdrawals.
With a college savings plan, you will need to tap into those resources on a specific date, and don’t have the luxury of riding out a slump for a year.
After all, what are you going to do, tell your kid to get a job instead of go to college because the markets’ down?
That’s why I can’t afford a 529 savings plan for my kid.
-Grant
http://www.thecornerofficeblog.com/2009/03/22/why-i-cant-afford-a-529-college-savings-plan/