Why Your 529 Plan Should Get More Conservative as College Approaches
Saving for college is one of the biggest financial priorities for many families, and 529 plans are one of the most effective tools to get there. However, what often surprises people is that a 529 plan shouldn’t remain invested in the same way throughout its life. In fact, as college draws near, it can be wise to gradually shift your 529 investments to be more conservative.
This shift isn’t just an arbitrary rule. It’s a strategy to protect the money you’ve worked hard to save. Let’s break down why this matters and how it works.
Understanding the Role of a 529 Plan
A 529 plan is a tax-advantaged savings account designed for education expenses. The money you put in can grow tax-free, and withdrawals for qualified expenses—such as tuition, books, and room and board—are also tax-free.
When your child is a toddler, the timeline for using the funds can be more than a decade away. That gives your investments time to recover from market dips. But when your child is a high school junior? Suddenly, there’s little time to make up for a downturn.
This is where adjusting your investment approach comes in.
Why the Investment Mix Should Change Over Time
Think of your 529 plan in two phases:
Growth Phase: When your child is young, your primary goal is to grow your savings as much as possible. That usually means investing in a higher percentage of stocks. Stocks historically provide higher returns than bonds or cash, but they also carry more short-term risk.
Preservation Phase: As college approaches, the priority shifts from growth to protecting what you’ve accumulated. A market downturn right before you need the money could significantly reduce what’s available for tuition and other expenses. That’s why gradually reallocating to more conservative investments—like bonds and cash equivalents—helps reduce risk as you get closer to withdrawing the funds.
This process is often called a “glide path,” a term borrowed from retirement planning that means adjusting investments toward safety as the goal date approaches.
The Risk of Staying Too Aggressive
If your child is a year away from college and your 529 plan is still heavily invested in stocks, you could face a big problem. Imagine the market drops by 20% just as tuition bills start coming due. Suddenly, a large chunk of your savings has evaporated—right when you need it most.
Unlike retirement savings, which may remain invested for decades while you’re withdrawing, college funds are usually used up in a concentrated four-year window. That short time frame means you don’t have the luxury of waiting for the market to recover.
How to Get More Conservative
Many 529 plans offer age-based investment options that automatically shift the allocation as your child gets older. These can be a great way to “set it and forget it,” as they gradually reduce your exposure to stocks and increase your holdings in bonds and cash.
If you’re managing your own 529 allocations, here’s a general idea of how your plan might evolve:
15+ Years from College: Heavily weighted toward stocks (70–90%).
5–10 Years from College: A balanced mix of stocks and bonds (50–70% stocks).
0–4 Years from College: Primarily conservative investments (bonds, cash equivalents, and short-term instruments).
The exact mix will depend on your risk tolerance, savings progress, and whether you expect additional contributions.
The Psychological Benefit
Shifting to a more conservative allocation isn’t just about numbers—it’s also about peace of mind. Knowing your college funds are insulated from major market swings can reduce stress during an already emotionally charged time. Instead of worrying about how the next downturn might impact your child’s future, you can focus on making the college transition as smooth as possible.
When to Revisit Your Plan
Even if you’re using an age-based option, it’s smart to review your 529 plan regularly—at least once a year or when your circumstances change. For example, if you receive an inheritance or windfall, expect a scholarship, or decide to fund graduate school as well, your timeline and allocation strategy may need to be adjusted.
This is where working with a fiduciary financial advisor can make a difference. Advisors can help you assess your risk level, project future expenses, and develop a strategy that strikes a balance between growth and preservation.
Bringing It All Together
A 529 plan is one of the best ways to save for education, but the investment strategy shouldn’t remain static. As your child gets closer to college, gradually making your portfolio more conservative helps protect your hard-earned savings from last-minute market fluctuations.
This doesn’t mean abandoning growth completely, but it does mean prioritizing stability as you near the finish line.
At Parkshore Wealth Management, we help our clients develop education funding strategies that make sense for their overall goals. Adjusting a 529 plan is just one part of a bigger picture: thoughtful financial planning and disciplined investment management.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.