It appears likely that the U.S. Congress will pass a bill allowing investors to change the holdings in their 529 plans twice a year, making the plans much more appealing in the face of volatile market environments.
A 529 plan is a tax-advantaged savings plan designed to encourage saving for higher-education expenses. These plans allow you to save money before it’s taxed. Any earnings within the plan will be free from taxes.
The funds must be used to pay for “qualified education” expenses, which include tuition, books, fees, room, and board at any accredited school.
Under current tax rules, 529 plan holders are allowed to make changes to the investments in their accounts once a calendar year. However, many investors have turned away from 529 plans, as they want to change their 529 investments more often to respond to market changes.
Now, thanks to the Achieving a Better Life Experience (ABLE) Act, that rule may change; ABLE contains a provision that would allow 529 plan investors to make changes to their investment holdings twice a year.
However, 529 plans can be confusing. For example, they are offered by states, but you don’t have to choose a plan offered by the state in which you live. And establishing a plan in another state may have tax consequences. As always, it’s important to scrutinize the fine print.
Currently, only 3% of the population has a 529 savings plan, according to the Government Accountability Office. If you’re interested, your advisor will help you understand the complexities.