529 Plan Helps Save For College
How Does It Work?
By Scott Reeves
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A 529 College Savings Plan functions much like an open-end mutual fund and is run by professional money managers. All 50 states now offer a 529 Plan and some offer more than one. There is no requirement to use the program in your state and performance varies among the various funds. However, many states offer tax incentives to keep the money at home, so do the math before putting your money into an out-of-state plan.
In general, plan to tilt your investments toward equities if you have ten or more years before your student enters college and shift to bonds and CDs as freshman year draws closer to reduce the risk. If you'll need a portion of the money in the immediate future, transfer some of your savings to a money market account.
"If you start saving when your child is 12 or 13, you'll only have five or six years before college," Chittenden says. "A five-year window makes you vulnerable to short-term drops in the equity markets. But if you have a 15-year horizon, you can ride out fluctuations in the stock market."
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