New Year, New 529 Rules: What You Need to Know

New Year, New 529 Rules: What You Need to Know

Imagine watching the market ebb and flow, knowing you’re completely powerless to alter your investment strategy no matter what.

For a long time, families using 529 plans to save for higher education were in basically that position, as IRS restrictions permitted them to change their investment options just once a year—unless they changed their beneficiary.

Now, however, 529 investors have slightly more flexibility: Thanks to a bill recently signed by President Obama, they can adjust their investment holdings up to twice per year.

Yet while some might jump at the opportunity to take greater control over their investments, experts say it’s generally better to maintain a relatively hands-off approach.

The 529 plans “are really not designed for self-directed investors, or those who like to shift their investments frequently,” Joseph Hurley, founder of, told The Wall Street Journal.

Why? Many people who utilize 529 plans choose an automatic age-based option, which shifts its emphasis as the beneficiary gets closer to college age. Others may select their own investments, but typically model it on the age-based strategy, which Hurley says shouldn't require rebalancing more than once a year.

Still, some investors may remain dissatisfied. Recently, organizations including the College Savings Plans Network have petitioned the government to let investors make as many as four changes to their investment options each year.

Ultimately, Hurley said much of the desire for greater freedom with 529 plans is psychological. Investors just don’t want to feel trapped by their original choices—even if they don’t necessarily plan to change them.

Before you make a decision about how often you’ll adjust your investment holdings, make sure you’ve got your 529 facts straight. Learn more about the ins and outs here.


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