Don’t panic that the market has whittled your kids’ 529 plan

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When my husband tells me to “calm down,” even if my concern is warranted, I want to punch him.

In my mind, when he says those two words, all I hear is: “You’re being irrational.”

But I know his heart, and that’s not what he’s saying. He just knows that I can let my emotions get the better of me.

For natural worriers like me, when there’s a threat to our well-being, our go-to emotion is panic. So I understand why people are fleeing equities now that the stock market is having some of its worst days in history.

However, you can’t let your feelings drive your financial decisions. It’s OK to feel what you feel, but please pause before you make a move.

I’m glad readers are reaching out for advice. This week, I received an email from a Maryland couple investing in a 529 college-savings plan. Their son is graduating from high school in a little over a year and will be applying to out-of-state schools, mostly in the $60,000 to $70,000 a year retail range.

A 529 savings plan allows your contributions to grow tax-free. If the funds are used for qualified educational expenses, earnings are not taxed at the federal or, in most cases, state level.

“We had saved about $150,000 in a 529 account before the coronavirus outbreak sent markets tumbling,” the mother wrote. “We don’t have a lot of time to wait out a recovery — as we do for retirement. We had already begun to move some of the 529 investments into more conservative funds, but are wondering if we should stop pouring money into a dropping 529?”

In this situation, experts I reached out to said that the couple shouldn’t be heavily invested in stocks.

“Because equity markets are uncertain with respect to shortterm valuations even in the best of times, I routinely recommend to clients that as their children approach their junior and senior years of high school, they keep their investments out of equities for funding the first 12 to 24 months of college at a minimum,” said Lynn Ballou, a certified financial planner and partner at EP Wealth Advisors in Lafayette, Calif.

The time to aggressively invest in 529 funds is when your child has years before heading off to college, Ballou said.

“It’s hard to take the high road and move to more conservative pastures when markets are skyrocketing up, because it feels like we are leaving money on the table,” she said. “But when the rollercoaster ride of market volatility returns and it’s time to cash out and pay up for what we were saving for, it’s no fun to pull money out at a beaten-up value. Better we had just passed up some of the gain by being a long-term investor who got out a little too soon but still made a great rate of return.”

When there’s a threat to our wellbeing, our go-to emotion is panic. However, you can’t let your feelings drive your financial decisions.

And what about new contributions?

Keep the money in cash, said CFP David Holland of Holland Advisory Services in Florida. “That’s prudent given the proximity to use,” he said.

I suggested to the couple that their son apply to an in-state school, in which case — even with the market downturn — they should have enough saved already.

If you’ve got plenty of time before your child goes to college and you’re putting money in a 529 plan, keep funding it, says Jennifer Kruger, branch manager of the Bryant Park Investor Center at

Fidelity Investments.

“When there’s volatility in the market you have time on your side, you’re basically buying things on sale,” Kruger said. “Weeks ago, things were expensive. Now they’re cheaper.”

Now’s a good time to invest in a 529 plan and increase your contributions using an investment strategy called “dollar cost averaging,” Kruger advised. Under this method, you regularly invest no matter what the market is doing. The effect is that you buy more of an investment when prices are low and less when costs are high.

Also keep in mind that if you stop investing in a 529 plan, you could lose a valuable state tax deduction, said Corbin Blackwell, a New York-based CFP at Betterment.

“Many states provide tax breaks for residents who contribute to that state’s 529 plan,” she noted.

The volatility in the stock market is a reminder that parents need to pay attention to the allocation of their 529 plans, said Carolyn McClanahan, a CFP with Life Planning Partners in Jacksonville, Fla.

“This is one reason we use ‘aged based’ portfolios for 529 plans, so the risk is dialed back automatically,” McClanahan said.

I know you’re frightened by the rocky markets. I am too. But don’t let fear drive your decision-making.