529 plans have been an increasingly popular way to save for college now for a number of years, but recent data suggests that parents are dropping out of 529 plans. Some are opting for other methods of saving, while others simply can’t afford to save for college.
According to this Wallstreet Journal article, the amount contributed to 529 plans in 2006 and 2007 was over $15 billion, while the contribution amount for 2008 was a relatively minuscule $5 billion.
Obviously, much of this is for the same reason many workers have ditched their 401k plans – the market crash of ’08 has convinced them that the stock market is not a safe place to put their money.
They’re right of course, to a point. It all depends on your time horizon. If you’re looking to retire in the next 3 years, you shouldn’t have 70% of your 401k in stocks. Similarly, if your child is going to college in the next 3 years, you shouldn’t have 70% of the child’s 529 account in a stock fund. It’s simply too risky that late in the game.
But this doesn’t mean that 529 plans or the stock market in general is the wrong place to be if the time before you’ll need the money in over a decade. The article profiles some people who are so scared to invest that they now are making some really questionable moves, giving up potential growth in years to come for safety today.
This is all very similar to the outcry to fix or scrap the 401k plan, but just like 401ks, it’s not 529 plans that are the problem, but people’s ignorance and unreal expectations.
The article does have some good alternatives to 529 plans, though each carries its own kind of risk: 529 Savings plans,529 Prepaid plans, Coverdell Education Savings Accounts, Custodial Accounts, Savings Bonds.
Fortunately I live in the state of Georgia which will pay for your child’s college tuition if your child maintains a certain grade point average. I’m not surprised that contributions to a 529 have declined but I’m hopeful the economy will improve and stabilize-would hate for any child to not be able to attend a college of choice due to lack of financial means.