[UNITED STATES] Market turbulence driven largely by President Donald Trump’s shifting tariff policies has kept investors on edge since April. While the S&P 500 has rebounded from last month’s lows, families who’ve been steadily saving for college may still find their 529 plan balances haven’t fully bounced back.
As tuition bills come due, families tapping their 529 college savings accounts should proceed with care, experts say. “With a little planning, making withdrawals can be something to celebrate, not just something to fear,” said Smitha Walling, head of Vanguard’s Education Savings Group.
Since their introduction in the 1990s, 529 plans have become a key pillar in many families’ strategies for financing higher education. These plans offer a range of investment options and allow parents to tailor their approach based on risk tolerance and their child’s age. That flexibility becomes particularly important during market downturns.
For families concerned about recent performance, reviewing asset allocation is a smart first step, according to Mary Morris, CEO of Commonwealth Savers. “What you need to think about is assessing your risk appetite,” she said.
Most 529s offer age-based portfolios that gradually shift from stocks to more conservative investments, like bonds and cash, as the beneficiary nears college age. This approach can help cushion losses—but may also limit potential gains.
The recent market swings have underscored the importance of diversification. While age-based portfolios automatically adjust over time, a more hands-on strategy may better suit some families. Financial advisors often recommend a periodic review to ensure your investments are still in line with your financial goals.
“Pay attention to how your fund shifts from stocks to bonds,” Morris said. “If you are in a total stock portfolio, you may not want that ride. You don’t want to get seasick.”
If market instability feels overwhelming, adjusting your allocation could help. One option: start de-risking part of your portfolio by reallocating to cash equivalents. “This offers principal protection while still providing a competitive return and peace of mind,” said Richard Polimeni, head of education savings at Merrill Lynch.
Another increasingly popular option is the use of target-date funds, which automatically adjust allocations based on the year a student is expected to enter college. This hands-off approach appeals to many parents, though advisors stress the importance of reviewing fund performance regularly.
Still, financial experts urge caution against a full move to cash. “The worst thing an investor can do in a down market is panic and sell investments prematurely, locking in losses,” Polimeni warned.
History backs this up. Following the 2008 financial crisis, only 10% of investors liquidated their 529 plans entirely, and about 20% shifted to less risky investments, according to education expert Mark Kantrowitz.
Making a 529 Withdrawal Strategy
When facing an imminent tuition bill, families should weigh whether to use 529 funds now or allow them more time to recover and grow. “Consider whether it’s better to use the funds now or let the funds continue to grow and those returns compound,” said Vanguard’s Walling.
Polimeni suggests paying upfront costs out of pocket and reimbursing yourself from the 529 later in the year to give the market time to rebound. Eligible out-of-pocket expenses can be reimbursed in the same calendar year, which could buy an extra six to seven months of potential growth.
Parents should also consider the timing and method of withdrawals. Taking a lump sum can carry different tax implications than spreading withdrawals out. Consulting a tax advisor can help families make the most of the plan’s tax benefits.
Another option is to use federal student loans to cover current costs and draw from the 529 plan later to pay down the debt. However, if considering private loans—which often carry higher interest rates and less flexible terms—it may be smarter to use 529 funds upfront and delay borrowing.
Even while making withdrawals, experts advise continuing contributions to take advantage of tax deductions or credits and ongoing tax-deferred growth. “The major advantage is the tax-deferred growth, so the longer you are invested, the more tax-deferred growth you will have,” Polimeni noted.
529 Plans Still Key Despite Shifting College Plans
“Markets go up and down, but students’ goals remain the same,” said Chris McGee, chair of the College Savings Foundation. Amid rising tuition costs, more students are adjusting their college plans. A recent survey from the College Savings Foundation found that 42% of high school students are now opting for technical training, credential programs, or more affordable local colleges—up from 37% the year before.
Nearly 70% of those students plan to live at home while studying, the highest figure in three years. Even as education choices evolve, recent policy changes have made 529 plans even more attractive. As of 2024, unused 529 funds can be rolled into the beneficiary’s Roth IRA under certain conditions, without penalties or taxes. Plans now also allow spending on continuing education, apprenticeship programs, and student loan repayments.
A new rule has even opened the door for grandparents to contribute to a grandchild’s education without negatively impacting financial aid eligibility—a move welcomed by many families.
More Families Turning to 529 Plans
These enhancements have helped drive increased participation. In 2024, the number of active 529 accounts climbed to 17 million—up more than 3% from the previous year, according to the Investment Company Institute.
Assets held in 529s rose to $525 billion by year-end, an 11% increase, while the average account balance reached a record $30,961, per data from the College Savings Plans Network. “The industry is coming off its best year ever in terms of new inflows,” said Polimeni.
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