How does your 529 plan stack up against the competition?

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Mediocre investment returns, higher-than-average fees, limited investment options and flexibility — these factors might lead you to conclude you could do better with a different 529 plan or a different college savings option altogether.

You can research 529 plans at the College Savings Plans network website at www.collegesavings.org. If you discover your 529 plan’s performance has been sub-par, what options do you have?

Roll over funds to a new 529 plan
Under federal law, you can roll over funds in your existing 529 to a different 529 plan once every 12 months without having to change the beneficiary and without triggering a federal penalty.

The rollover process is straightforward.

  • Call your existing 529 plan to see what steps are required; ask about rollover fees.
  • Call your new 529 plan to establish an account.
  • You must complete the rollover within 60 days of receiving a distribution from your former 529 plan to avoid a penalty.

If you want to roll over the funds in your existing 529 plan to a new 529 plan more than once in a 12-month period, you’ll need to change the designated beneficiary to another qualifying family member to avoid paying a federal penalty. As a workaround, you can change the new beneficiary back to the original beneficiary later.

Change your investment strategy in your current 529 plan
If the new 529 plan you’re considering has roughly the same mix of investment choices and similar fees as your current plan, consider whether you’d be better off staying put and simply changing your current investment allocations. This is especially true if you have invested in your own state’s 529 plan and the availability of related state tax benefits is contingent on you remaining in your state’s plan.

When changing your investment options, it’s important to distinguish between your existing contributions and your future contributions. Most 529 plans let you do this at any time.

The rules are stricter when it comes to your existing contributions. If you’re unhappy with the investment performance of your current investment choices but don’t want to switch plans completely, 529 plans are federally authorized to let you change the investment options for your existing contributions twice per calendar year. Check to see whether your 529 plan offers this flexibility.

Choose other savings options that give more investment control
If your 529 plan investment returns have been lackluster, you might wonder whether you should continue putting money into your account. Although many 529 plans offer a range of investment options you can pick from, you might decide you’d like more control over college investments. In that case, you might consider using an entirely different savings option, such as a Coverdell education savings account, a custodial account, or an IRA, all of which let you choose your underlying investments.

As you evaluate your options, keep in mind any college investment strategy should be reexamined periodically in light of new laws and changes in your individual circumstances. 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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