Afraid to look at your 529 account? How to manage education savings in a down market.

USA Today

09-04-2025

Afraid to look at your 529 account? How to manage education savings in a down market.
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If you have an education savings account to manage while the stock market is flailing, and your kids are heading to college, you may be afraid to log in and survey the damage.
Many consumers aren't all that familiar with how education savings accounts work, especially by comparison with more ubiquitous tax-favored retirement accounts.
A 529 plan is a tax-advantaged account you can use to pay a wide range of education expenses, with plans sponsored by every state and the District of Columbia. They allow tax-free withdrawals for qualified expenses. They boast high contribution limits and are quite flexible in investment choices, according to a Motley Fool explainer.
A Coverdell Education Savings Account, or ESA, also allows tax-free withdrawals on qualified expenses, and investment options are generally broader than for 529s, Motley Fool reports. The drawback is lower contribution limits: $2,000 per year per beneficiary.
How soon do you need to spend your 529 account dollars?
What to do with those accounts in a down market depends on several variables, starting with how soon you'll need the money.
Many 529s and Coverdells function as college funds for children or grandchildren. If the beneficiaries are a decade or more away from college, then it might not matter so much how the stock market is doing now. If a beneficiary is in college now, you may face more urgent choices.
To make investment decisions simpler, many education savings plans offer age-based options. You can pick an aggressive, moderate or conservative strategy keyed to the enrollment date of a child.
You can also choose to manage investment decisions yourself. In that case, you may face some pressing choices about how your money is invested.
Here are some tips from the experts, organized according to how soon the money will be spent. We'll assume the fund is for children or grandchildren to go to college, while recognizing that anyone can open a 529 or Coverdell account for a wide range of educational purposes.
Scenario 1: The kids are 10 or more years away from college
If you have an education savings account for kids who are 10 or 15 years away from needing the money, 'there's nothing that you need to change,' said Peter Lazaroff, a certified financial planner in St. Louis.
The reason: Bear markets seldom last longer than a few years. Your education savings will have plenty of time to recover. You can ignore them for now.
Or, you can take advantage of the down market and accelerate your contributions. An individual may gift up to $19,000 a year to a 529 account in 2025 without triggering federal gift taxes, and you're allowed to fund up to five years of contributions in a single year.
'If you really have a lot of extra money, you may want to think about super-funding a 529 plan in a bear market,' Lazaroff said.
Scenario 2: The kids are in high school
If the kids will need your education savings dollars in a few years, then you may be more worried about the current market downturn.
Here's where those age-based investments work to your advantage. If you have a 529 with a target enrollment date of 2027, and the money is allocated accordingly, then you may have only a small percentage of the funds invested in stocks.
'If you have a child in high school, and you're in an age-based option, your account might be down a little, but you haven't thrown off your entire plan,' Lazaroff said.
When it comes to target dates, most 529 plans are more conservative than retirement plans. A target-date 529 plan typically assumes the money will be spent in a narrow range of years, whereas a target-date retirement account assumes the funds will be spent across a much longer span.
Target-date 529 plans "do get very conservative close to school age, and they descend rapidly in terms of risk," said Monica Dwyer, a certified financial planner in West Chester, Ohio.
'If you are in a 2025 target-date retirement fund, you may still be 60% stocks,' said Jonathan Swanburg, a certified financial planner in Houston. If you have a 529 plan with the same target date, by contrast, 'you are likely 10% stocks and 50-60% cash equivalents,' a much more conservative mix.
Scenario 3: The kids are already in college
If you are already spending down your education savings, and you opted for age-based allocations, then your funds are probably invested conservatively. The stock-market downturn may have little effect.
Even if the account has lost some value, remember that 'you won't need all of the money on day one of college,' Lazaroff said. Pace your spending, and give the market time to rebound.
If your education savings have lost significant value, and you're spending the money now, consider alternatives to withdrawing the money.
'Can you pay your tuition out of pocket while your account recovers?' Lazaroff said. Perhaps you can pay for the current semester in installments, drawn from your checking and savings accounts.
'The most important thing is not to panic and go to all cash,' Lazaroff said, liquidating a 529 or Coverdell while its value is down.
If you are able to leave some or all of your 529 funds untouched, Swanburg said, then think about keeping the money invested, ride out the down market, and 'use it for your child's future Roth contribution, rather than tuition,' taking advantage of a recent change in investment laws.
You can also move the money "from one sibling to another," Dwyer said. If you can keep education funds invested during a down market, you can spend them on a younger child when their value recovers.
In any scenario: Take a look at your investments
Many investors choose to ignore target dates in 529 plans and allocate the money themselves. If that's your situation, you may want to take a hard look at your investments right now.
If your 529 plan is invested entirely in cash or cash equivalents, then the current market could present an opportunity to invest some of the funds in stocks.
'Things are on sale,' Lazaroff said. 'You can buy the same shares for less dollars.'
Remember, however, that you are generally allowed to change investments within a 529 plan only twice per calendar year, or when you change beneficiaries.
When the market is volatile, that constraint could be a good thing, because it hinders investors from making impulsive changes, said Greg McBride, chief financial analyst, personal finance, at Bankrate.
'I think, by nature, that sort of helps enforce the hands-off, ride-out-the-volatility advice,' he said.