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Facing the Pandemic with Hope

Facing the Pandemic with Hope

With the rapidly evolving impacts of COVID-19 on daily life, we understand the fear and anxiety many Americans are facing today. Those of us with the College Savings Plans Network are choosing calm and hope as the best ways to face these uncertain times.

Your child’s dreams and your goals for their future are long-term and boundless. By staying the course, you can keep those dreams moving forward.

As a nation, we have faced crises and disasters before, and we are resilient and we are confident we will recover. While this situation is uncharted, there is comfort in knowing we are all in this together as we plan to emerge and flourish like we always do.

If you have been saving with a 529, you may have a lot of questions right now. To help guide you through those questions, we have some helpful tips and FAQs below.

New 529 Contributions

While we weather this pandemic, adopt a “do-what-you-can” mantra for continuing to save for college. If you’re not able to contribute as much to your 529 as you did previously, that’s okay. Give yourself a break. If it’s doable for you, even just setting aside $5 to $10 a week to invest in your 529 can add up over time. Though no one can guarantee exactly what the market will look like tomorrow, keeping your future goals in mind is important – just as it is with retirement. 

Refunds from Colleges

College students and parents who receive refunds for tuition, room and board, or other qualified expenses can re-contribute their refund back into their 529 plan account within 60 days of receipt to avoid paying any penalty or taxes on the earnings. Be sure to check how a refund contribution may be treated under the laws of the state where you pay taxes.

Beware of Scammers

Unfortunately, scammers will use any means they can to try to take people’s money – especially during times of crisis when you are trying to manage the situation and your attention may be elsewhere. Be on guard against scams of all kinds. If someone reaches out to you claiming to represent your 529 plan, contact your 529 plan provider separately to verify.

Saving Money

If your financial situation has been negatively impacted by the pandemic, here are some ways you can scale back on expenditures and save money.

  • Cancel subscriptions that you can do without. If you have multiple streaming services, cut one.
  • Keep digital coupons handy on your phone.
  • Buy more off-brand items.
  • Pay annually vs. monthly if you are able for services that are necessities. You may receive a discount for paying annually.
  • If you are paying back student loans, consider taking advantage of the federal government’s six-month suspension of required student loan payments. Under the stimulus bill, payments are not required through Sept. 30.
  • With interest on student loans not accruing during this timeframe, all payments you make will apply to directly principal. If you can afford to keep making payments on your loan, consider this an opportunity to pay down as much of your principal as you are able.
  • If you or someone within your household lost a job or is currently furloughed, reach out to state agencies that manage economic assistance programs. Programs like SNAP, TANF, WIC, and unemployment insurance are intended to help during times like these.
  • Consider asking for a gift toward higher education for upcoming birthdays, holidays and other special occasions. Most 529 plans allow account owners to invite friends and family to contribute online and there are even e-gift cards available for 529 plans and student loan accounts.

What will happen to the money I invested in a 529?

With long-term investments, market downturns happen and so do recoveries. Your child’s dreams and your goals for their future are long-term and boundless. As you evaluate your savings and investment goals, it’s important to keep your savings time horizon, risk tolerance, and overall objectives in mind.

Should I take money out of a 529?

If you withdraw money from your 529 account for nonqualified expenses, you will pay taxes on the earnings portion of that withdrawal and may also be subject to a 10 percent federal penalty tax. There also may be state and local taxes and/or penalties that would apply.   

When considering an investment change or withdrawal, it’s important to remember that liquidating your assets or switching investments may lock in losses if markets rebound. Investment exchanges you make within your 529 plan account are limited to two times per year.

Because investing and making changes to those investments is an important decision, you should consult your tax or investment advisor about your particular circumstances. 

Should I change my asset allocation?

Given recent market volatility, it’s important to remain calm and evaluate your risk tolerance, savings time horizon, and overall investment goals when considering investment choices.

In general, the majority of 529 plans offer age-based investment options, which are designed to balance risk and return in light of the beneficiary’s age. These options are the most commonly selected investment options in 529 plans and offer some safeguards to beneficiaries who are closer to college age as they will trend toward less risky investments.

Be sure to carefully review the options in which you are invested and available alternatives before making any changes. While age-based options are the most popular, there are many other types of investments in 529 plans ranging from ones that are FDIC insured to fixed choices such as 100% equity. Your savings time horizon, risk tolerance, and investment objectives will help you determine whether a change is in order. Keep in mind, however, that changes to existing investment options can be made only twice per calendar year or upon change in the beneficiary.

Because investing and making changes to those investments is an important decision, you should consult your tax or investment advisor about your particular circumstances. 

What if my child is about to go to college?

If your child has a 529 account and is in college or about to attend college, talk to someone with the school’s financial office about all options available to you to cover the costs of the coming semester. Initiating the conversation early will give you an idea of how to proceed once classes resume.

Should I keep investing in a 529 plan right now?

Though no one can guarantee exactly what the market will look like tomorrow, taking steps to prepare for the future can be beneficial in college savings just as it can be with retirement. If you are in a financial position to do so, continuing to invest in a 529 plan now may benefit you in the long run.

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