Sunday Musings: The 529 Problem

Several clients of mine have been involved with 529 college savings plans. The love affair with these instruments came to an end last year when many realized the severe limitations of getting out of invested positions within the plan guide lines.

Reader Chris summed it up this way:

What would you do about funds in a 529? I feel helpless since you can only change the allocation once a year!

Let me first say that I am not expert on these plans. However, ever since they were introduced, my view has been negative. Not because of what the plans were meant to accomplish, but because of the limitations on the investment side. To be able to only change an allocation once a year is totally unacceptable to me.

While this worked fine during bull markets, last year’s market crash provided a reality check for those invested in 529 plans. Some of my clients simply opted out, paid whatever taxes were due, and transferred the proceeds to a custodial account.

Saving taxes to provide funds for college is a wonderful thing, but not if it comes at the expense of making wise investment decisions. If you have been involved with such a 529 plan, I like to hear your experiences so other readers can benefit as well.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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