Asset Allocation and Section 529 Plans

Abstract:     
Previous research has concluded that prespecified asset allocations used by many Section 529 college savings plans are not only suboptimal, but that they are also so conservative that many investors would do better by avoiding such plans entirely. Recent changes in the tax code and in the rules of many states' Section 529 plans alter these conclusions in important ways. In addition, by focusing on the investment options available within the plan, previous research tends to deflect attention from other useful investment options and strategies. In particular, it tends to shift focus away from the rest of the investor's portfolio. This shift in focus tends to obscure strategies that investors can use to avoid some of the remaining investment restrictions imposed by various plans, and can also cloud implications for regulators and designers of these plans.

Number of Pages in PDF File: 8

Keywords: Section 529 Plan, asset allocation, college savings plan, investment restrictions

JEL Classification: G0, G11, G19, G23, G29

Accepted Paper Series