Time to Review Your 529 Accounts

If you’ve established a 529 college savings account for a child or family member, reviewing the account regularly ensures your strategy keeps pace with that rapidly approaching college start date.

Here are three critical areas to review:

1. Maximize Your State Tax Credit

Indiana offers one of the most generous 529 state tax credits in the nation:

• The Benefit: Tax filers receive a 20% state tax credit up to $7,500 in annual contributions - a maximum tax savings of $1,500 per year ($750 if married filing separately).
  
  
• The Strategy: You can continue contributing to a 529 account even while the student is actively enrolled in college. Those funds can then be used to pay for a qualified expense immediately, and you can still claim the state tax credit that year.

2. De-Risk Portfolios Before College Hits

Unlike retirement accounts where you can often wait out a market downturn, 529 plans have a hard deadline. Tuition is due on a set date regardless of market performance.

After years of strong market returns, accounts set up years ago may now carry more equity risk than appropriate for a student entering college within the next 1 - 5 years.

In Indiana's 529 plan, you have two primary ways to manage this risk:

• Enrollment Portfolios (Hands-Off): Pre-set portfolios labeled by enrollment year (e.g., 2033 Enrollment Portfolio). These automatically shift allocations from stocks into safer assets as college approaches.
  
  
• Custom Individual Options (Hands-On): A selection of 9 individual underlying options (ranging from 100% stocks to fixed income and FDIC-insured options). Note: Custom portfolios do not auto-adjust over time and require manual rebalancing.

3. Re-Evaluate Leftover Funds Post-Graduation

If money remains in the 529 account after graduation, there is no mandate to liquidate it immediately. However, you should review your investment allocation:

• The Target-Date Issue: If you were in an Enrollment Portfolio, the allocation will have shifted to an ultra-conservative mix (~10% stocks, 90% bonds/cash).
  
  
• Adjusting for New Timelines: If you plan to keep the funds invested long-term for a relative, a future grandchild, or a potential Roth IRA rollover, you may want to adjust the investment selection back to a growth-oriented asset allocation.

Summary

With the stock market performing very well over the past several years, now is a good time to make sure all those gains in your 529 accounts are positioned appropriately for their timeline. Making changes while the market is up will avoid a lot of regrets or second-guessing if the market starts to change right when the funds are needed.

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