Don't Get Blindsided: Yes, Your 529 Plan Can Absolutely Lose Money
- Anna Kay
- Jul 12
- 2 min read
A 529 college savings plan is often hailed as a tax-advantaged superhero for education savings, and for good reason. Contributions can grow tax-free, and qualified withdrawals are also tax-free. But here's a crucial truth that sometimes gets overlooked in the excitement: a 529 plan is an investment, and like all investments, it can lose money.
If you've been diligently contributing to your 529 and are now facing a lower balance than you expected, don't panic. Understanding why this happens and what steps you can take is key to navigating market fluctuations and staying on track for your college savings goals.
How Your 529 Can Lose Money: The Investment Factor
The "savings" in "college savings plan" can be a bit misleading. While some 529 options might offer FDIC-insured accounts that preserve principal, the vast majority of 529 plans are invested in various underlying securities, such as:
Stock funds: These funds invest in company stocks and can be excellent for long-term growth, but they are also subject to market volatility. When the stock market experiences a downturn (a "bear market"), the value of your stock holdings can decrease significantly.
Bond funds: Generally considered less volatile than stock funds, bond funds invest in debt securities. While they offer more stability, bond values can still fluctuate with interest rate changes and market conditions.
Target-date portfolios (Age-based options): Many 529 plans offer these popular options, which automatically adjust their asset allocation as your child gets closer to college age. Early on, they're typically heavily weighted towards stocks for growth potential. As the beneficiary ages, they gradually shift to more conservative investments like bonds and cash to preserve capital. However, even these professionally managed portfolios can experience losses, especially if a significant market downturn occurs closer to when you need the funds.
Static portfolios: These maintain a consistent asset allocation regardless of the beneficiary's age. If you've chosen a static portfolio with a high allocation to stocks, you'll experience more significant swings with market ups and downs.
In essence, if the underlying investments within your 529 plan perform poorly, your account balance will reflect those losses. Just like a 401(k) or an IRA, a 529 plan is not immune to the risks of the market.
Don't Let Market Swings Derail Your College Dreams – We Can Help!
Seeing your 529 balance dip can be unsettling, but it doesn't have to derail your child's college dreams.
The most valuable asset in college savings is time. The earlier you plan and adjust, the more opportunity your investments have to recover and grow. Don't wait for further market changes or for college to be just around the corner.
Reach out to us today to get personalized help. We can review your current strategy, help you understand your options, and make sure your savings are working as hard as possible for your child's future. The sooner we start, the better position you'll be in!
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