Practical Applications of 529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios
Practical Applications 7 (4) DOI:10.3905/pa.7.4.368
Posted: 16 Apr 2020
Date Written: January 29, 2020
In 529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios, from the Fall 2019 edition of The Journal of Wealth Management, Ross A. Riskin of the American College of Financial Services discusses the effects of the Tax Cuts and Jobs Act of 2017 (TCJA) on 529 college savings plans. The TCJA expanded the types of educational expenses for which 529 plans can be used to include qualified K–12 tuition expenses. However, investors should be aware that certain investment options within 529 plans may not be optimal when planning for these educational opportunities. For instance, most age-based portfolios in 529 plans assume that the beneficiary will be 18 years old when the disbursement of funds begins. This assumption is reflected in allocations to equity, which may be overallocated for beneficiaries younger than 18 and underallocated for beneficiaries older than 18 when planning for K-12 or post-graduate tuition expenses, respectively. Additionally, states vary in both the tax laws pertaining to 529 plans and the different levels of risk assumed by the portfolios. Riskin suggests that investors may be better off pursuing static portfolios or individual investment options if they plan to use the funds to pay for qualifying non-undergraduate education expenses.
Keywords: 529 plans, age-based portfolios, asset allocation, tax cuts and jobs act, portfolio management, fundamental equity analysis
JEL Classification: G11, K34, I22
Suggested Citation: Suggested Citation