How to manage your 529 savings during economic downturns
It’s that time of the year again, when parents are driving their kids off to college. Whether you’re a parent of a college-going kid or are likely to be one soon, it’s hard not to worry about the costs of a higher education. During times of stock market volatility and heightened inflation, it’s natural to feel tense about your investments, whether it’s your retirement portfolio or your 529 college savings plan account.
While volatility in the stock market is par for the course, it’s important to not react quickly out of fear; however, sometimes making a few adjustments to 529 plan accounts can help you save more in the long run. Here are four steps to consider:
1 Consider the gifting option—With high inflation, your paycheck may be stretched a lot further than in the past. While it might be tempting to put off making contributions to your 529 savings plan account, it will only hurt in the long run. One option is to use the power of gifting: Whether it’s your kid’s birthday or a holiday where gifts are given, ask family and friends to forgo material gifts and instead make a contribution to your child’s 529 college savings plan account. And depending on which U.S. state contributors live in, they may even be able to claim a deduction or credit on their state taxes.
2 Consider age-based investment options—An age-based investment portfolio considers the beneficiary’s current age while creating an asset allocation mix. For a younger beneficiary, the portfolio is invested more in equities; as your child grows older, the assets are invested more in fixed-income and cash savings options. This strategy could help decrease the amount of risk in the portfolio as the child nears college age.
3 Leverage the power of dollar cost averaging—Using this fairly common investment strategy, you can make economic downturns work for you in the long run. It’s simple—the same amount of money invested every month will buy more stocks when the market’s down and less stocks when the market’s up. So ensure you continue contributions when the market’s down to purchase more investments at a lower cost.
4 Don’t make emotional decisions—Americans owned 15.7 million 529 savings accounts as of 2021, with an average account size of $30,562, according to College Savings Plan Network. With so many Americans relying on those accounts to help finance higher education, it's critical to manage those assets wisely. Yet markets have taken a volatile turn in 2022, increasing the temptation to make snap judgments about invested savings. However, it's important at such times to take a longer-term perspective and perhaps seek professional advice.
If you need to make a withdrawal from your 529 plan account to pay a bill, try and hold off as long as you can during an economic downturn; this way, you’ll have more money in your account when the markets recover. Using alternative funding resources, such as financial aid, grants, and private scholarships, can help you reduce your out-of-pocket tuition bills.
Talk to a financial professional
Before making any decision regarding your 529 savings account or how to pay for college, meet with your financial professional, who can help you put together a plan that considers all of your options.
This material does not constitute financial, tax, legal, or accounting advice, is for informational purposes only, and is not meant as investment advice. Please consult your tax or financial professional before making any decision.
Dollar cost averaging does not assure a profit or protect against loss in a declining market. You should consider your ability to continue investing during periods of low prices.
There is no guarantee that any investment strategy will achieve its objectives.
John Hancock Investment Management Distributors LLC is the principal underwriter and wholesale distribution broker-dealer for the John Hancock mutual funds.
John Hancock Retirement Plan Services LLC offers administrative and/or recordkeeping services to sponsors and administrators of retirement plans. John Hancock Trust Company LLC provides trust and custodial services to such plans. Group annuity contracts and recordkeeping agreements are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in NY), and John Hancock Life Insurance Company of New York, Valhalla, NY. Product features and availability may differ by state. Securities are offered through John Hancock Distributors LLC, member FINRA, SIPC.