A new school year will soon begin. And if you have young children, that means it’s one year closer to the day when they head off to college or some other post-secondary education or training. You might be preparing for that day with a 529 education savings plan — but should you be concerned if you need to start taking withdrawals to pay for education expenses when the financial markets are volatile?
Long-term investment vehicles based on the financial markets, like a 529 plan, will always fluctuate in value. If you’ve had a 529 plan for many years, you’ve probably invested money when the market has been up, down and flat. In fact, during down periods, it’s often a good time to invest, because your dollars buy more shares than they could when prices are up. Your hope is that, over the years, your 529 plan will gain enough to overcome the short-term declines in value.
In any case, you’ll want to keep in mind the key benefit of 529 plans: Earnings and withdrawals are federally tax free when the money is used for qualified education expenses for college and some trade school programs. And your state may give you an income tax deduction or a credit for your 529 plan contributions. In some states, a 529 plan can be used for K-12 schooling as well.
