By Betty Lochner, 529forCollege Liaison
May 26, 2020
This week on May 29, we celebrate National 529 Day! It’s a day set aside to increase awareness of and participation in 529 plans. I’m pleased to share 
that through the CSPN national awareness campaign (529forcollege.com), we are seeing 529 plan awareness grow. I know that, as a former state 529 plan director, one of the most frequently asked questions we received was “Why didn’t I know about these plans sooner?” and that is exactly why we continue to persevere to get the word out!
This year, life is different for all of us with the impact of COVID-19 on our daily lives. It brings added stress and anxiety, and much of it is around our finances and how to best address them.
I want to share with you some information and suggestions from CSPN that will hopefully address some of your concerns regarding saving for college.
Remember that your child’s dreams and your goals for their future are long-term. If you are able to do so, stay the course as much as possible and continue to contribute to your child’s college savings. That is how you will keep those dreams moving forward.
As a nation, we have faced crises and disasters before, and we are resilient, and we are confident we will recover. While this situation is uncharted, there is comfort in knowing we are all in this together as we plan to emerge and flourish like we always do.
If you have been saving with a 529 plan, you may have a lot of questions right now. To help guide you through those questions, here are some helpful tips to help you navigate through current information.
TIP 1: Continue Making 529 Contributions
While we weather this pandemic, adopt a “do-what-you-can” mantra for continuing to save for college. If you are not able to contribute as much to your 529 as you did previously, that’s okay. Give yourself a break. If it’s doable for you, even just setting aside $5 to $10 a week to invest in your 529 can add up over time. Though no one can guarantee exactly what the market will look like tomorrow, keeping your future goals in mind is important – just as it is with retirement and other long-term objectives.
TIP 2: Consider Options for Refunds from Colleges
College students and parents who receive refunds for tuition, room and board, or other qualified expenses can re-contribute their refund back into their 529 plan account by July 15 or within 60 days of receipt, whichever is later, or use for other qualified higher education expenses by Dec. 31, 2020, to avoid paying any penalty or taxes on the earnings. Be sure to check how a refund contribution may be treated under the laws of the state where you pay taxes.
TIP 3: Save Money
If your financial situation has been negatively impacted by the pandemic, here are some ideas for you.
- If you are paying back student loans, consider taking advantage of the federal government’s six-month suspension of required student loan payments. Under the stimulus bill, payments for federal student loans held by the U.S. Department of Education are not required through 30.
- With interest on student loans not accruing during this timeframe, all payments you are able to make will apply directly to the principal. If you can afford to keep making payments on your loan, consider this an opportunity to pay down as much of your principal as you are able.
- Consider asking your employer to contribute toward your student loans. Under the CARES Act, student loan payments made by employers under IRS Section 127 Educational Assistance Programs are tax-deductible business expenses for the employer and tax-free to the employee through Dec. 31, 2020.
- Celebrate and Save! Consider asking family and friends for a gift toward higher education for upcoming birthdays, holidays and other special occasions. Most 529 plans allow account owners to invite friends and family to contribute online and there are even e-gift cards available for 529 plans and student loan accounts.
Frequently Asked Questions:
- What will happen to the money I invested in a 529?
With long-term investments, market downturns happen, and so do recoveries. Your child’s dreams and your goals for their future are long-term and boundless. As you evaluate your savings and investment goals, it’s important to keep your savings time horizon, risk tolerance, and overall objectives in mind.
- Should I take money out of a 529?
If you withdraw money from your 529 account for nonqualified expenses, you will pay taxes on the earnings portion of that withdrawal only and may also be subject to a 10 percent federal penalty tax. There also may be state and local taxes and/or penalties that would apply.
When considering an investment change or withdrawal, it’s important to remember that liquidating your assets or switching investments may lock in losses if markets rebound. Investment exchanges you make within your 529 plan account are limited to two times per year.
Because investing and making changes to those investments is an important decision, you should consult your tax or investment advisor about your particular circumstances.
- Should I change my asset allocation?
Given recent market volatility, it’s important to remain calm and evaluate your risk tolerance, savings time horizon, and overall investment goals when considering investment choices.
In general, the majority of 529 plans offer age-based investment options, which are designed to balance risk and return in light of the beneficiary’s age. These options are the most commonly selected investment options in 529 plans and offer some safeguards to beneficiaries who are closer to college age as they will trend toward less risky investments.
Be sure to carefully review the options in which you are invested and available alternatives before making any changes. While age-based options are the most popular, there are many other types of investments in 529 plans ranging from ones that are FDIC-insured to fixed choices such as 100% equity. Your savings time horizon, risk tolerance, and investment objectives will help you determine whether a change is in order. Keep in mind, however, that changes to existing investment options can be made only twice per calendar year or upon change in the beneficiary.
Because investing and making changes to those investments is an important decision, you should consult your tax or investment advisor about your particular circumstances.
- What if my child is about to go to college?
If your child has a 529 account and is in college or about to attend college, talk to someone with the school’s financial office about all options available to you to cover the costs of the coming semester. Initiating the conversation early will give you an idea of how to proceed once classes resume.
- Should I keep investing in a 529 plan right now?
Though no one can guarantee exactly what the market will look like tomorrow, taking steps to prepare for the future can be beneficial in college savings just as it can be with retirement. If you are in a financial position to do so, continuing to invest in a 529 plan now may benefit you in the long run.
Those of us with the College Savings Plans Network are choosing calm and hope as the best ways to face these uncertain times. I encourage you to do the same and stay the course, if you are able, and you will keep those dreams moving forward.
About the author: Betty Lochner is the 529forCollege Liaison.