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What’s The Best Way To Invest In A 529 Plan?

What’s The Best Way To Invest In A 529 Plan?

| June 13, 2020

The ability to support your children financially beyond basic needs is an incredible gift. Specifically, providing education, whether it be private school through their earlier years or higher education, can increase their opportunities for the future and allow them to be financially successful as well. 

I think we can agree that most parents would like to offer some assistance in this area, so it is important to make your money work for you, just like your other investments. One of the best ways to do this regarding education savings goals is to invest in a 529 plan.

What Is A 529 plan?

A 529 plan is a savings plan catered specifically for education savings goals. As of 2017, money put into these plans can be used not only for qualified expenses related to college but also for K-12 tuition at private schools. (1)

What makes these plans so helpful is that all contributions are tax-deferred, meaning when you need the money, all qualified withdrawals will not be taxed, and no gains will be taxed either. Depending on the state plan you choose, you could potentially earn an income-state tax deduction as well.

Two Primary Methods For Investing In A 529 Plan

Although there is an option to buy prepaid credits to institutions for education purposes, this form of paying for education is extremely limited. Choosing one of the methods below to increase the amount of money you can provide for your child offers more flexibility and potentially a much better return. 

Age-Based Portfolio

This is the most commonly used method for investing in a 529 plan, because the older your child gets, the more conservative your investments get in preparation for withdrawing money. Since the age-based method automatically starts converting to less risky investment options as your child gets older, it is an attractive option for people who want to set the plan up and forget about it until they need it. (2)

Static Portfolio

This is a great method to use if you have a higher risk tolerance and want to be more actively engaged with how your money is growing since it allows you to invest in more aggressive funds until withdrawal. This method requires a little more hands-on approach because you have to manually change how it is invested if you want more conservative and less volatile allocations; it doesn’t automatically do that for you like with the age-based method.

One more thing to keep in mind is that if you have multiple children you would like to save for, you have the option of designating one beneficiary at a time within a 529 plan. For example, if your oldest ends up getting scholarship money or doesn’t need the money for some reason, you can change the beneficiary to another child and use the funds for them. For this reason, the static method allows you to invest more aggressively up until you actually need the money.

Determine What Is Best For You

Ultimately, finances are personal and each child will have slightly different financial needs when it comes to education. 

We at Whittenburg Wealth Partners want to tailor your plan according to the needs of your family by understanding what your goals are. If you think our firm would be a good fit for your financial needs, easily schedule a no-fee, no-obligation virtual appointment or contact us at 801-839-7050 or austyn@whittenburgwealth.com.

About Austyn

Austyn Whittenburg is a wealth planner and partner at Whittenburg Wealth Partners, a family-owned and family-operated financial and wealth management firm located in Salt Lake City, Utah. Austyn has 7 years of experience as a wealth planner and spends his days helping business owners, emerging successful families, and their ensuing generations simplify their financial lives and discover meaningful solutions. Austyn received a Bachelor of Science in Finance from Brigham Young University and holds the Certified Financial Planner™ (CFP®) and Certified Business Exit Consultant (CBEC®) credentials, his FINRA Series 7 through LPL Financial and 66 registrations through LPL Financial and Stratos Wealth Partners, and his life, health, disability, and annuity insurance licenses. Austyn is active in his community of Herriman, Utah, where he resides with his wife, Ciera, and two young sons, Grayson and Graham.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, member FINRA/SIPC.  Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and Whittenburg Wealth Partners are separate entities from LPL Financial.

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(1) https://www.bankrate.com/investing/best-529-plans/

(2) https://www.savingforcollege.com/intro-to-529s/how-do-i-select-the-right-investments-for-my-529-plan