It is the time of year when local high schools are putting on their (now virtual) college night programs. Admissions officers from local colleges usually appear giving parents of college bound children useful advice on essays, extracurriculars – and perhaps most importantly – finances.
For most families, paying for college is accomplished with a mix of grants, loans, and savings. 529 plans are often a key component of college savings. 529 Plans have the distinct advantage of allowing you to save your funds in an account which grows income tax free and can be spent on qualified education expenses (like college tuition), without any income tax being paid when the funds are expended.
What is less known are the investment options offered by 529 plans. We will focus here on the NY 529 plan, because it is likely the most common plan in our area.
What are my investment options for a NY 529 plan?
There are two basic options for the NY 529 plan. The first choice is to develop your own custom investment strategy utilizing the funds available through the plan. The second choice is to select one of the plan’s age-based investing options.
What types of funds are available to invest in?
The NY 529 plan utilizes funds from the Vanguard Group, Inc. Vanguard is a respected investment management company which was formed in 1975 and offers 425 low-cost funds and exchange traded funds (ETFs). In the NY 529 plan, there are 13 different portfolios available. A portfolio is an investment option made up of one or more individual funds.
How does the age-based plan work?
The age-based plan has three basic options: Conservative, Moderate, and Aggressive. Regardless of which option you choose, the mix of investments becomes more conservative as your prospective college student ages. As you can see in the chart covering years 15-19, the Conservative option ends with 100% in short term reserves and the Aggressive option has 12.5% in stocks and 87.5% in bonds.
How does the custom strategy option work?
With the custom strategy, you pick your own mix of investment options among the 13 different Vanguard portfolios available. The most conservative is the Interest Accumulation portfolio, which is 100% invested in short term reserves, and the most aggressive is the Aggressive Growth Portfolio, which is invested 100% in stocks.
Can I change my investments over time?
Yes, but you can generally only do so two times each year. The changes can be from one custom option to another, between custom options and age-based options, or between age-based options.
How do I know what to invest in?
There are a variety of online tools to help you research how to invest. The NY 529 website also has a questionnaire that helps you determine what type of investor you are. The best thing to do is to consult with an experienced financial advisor, who is familiar with planning for college and can give you good counsel on your options.
Saving for college can be daunting and confusing, but as with most life challenges – education is the key. Take the time to develop a plan with a qualified advisor and take the additional time to review the plan and adjust accordingly. Proper college savings planning is not a “set it and forget it” process. If you keep a keen eye on plan and follow through on your objectives, you will be able to give your student his or her best shot at collegiate success.
Matthew J. Dorsey, Esq. is a Partner with O’Connell and Aronowitz, 1 Court St, Saratoga Springs, NY. Over his 23 years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at 518-584-5205, This email address is being protected from spambots. You need JavaScript enabled to view it., and www.oalaw.com.
