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This drop could deliver a costly surprise for parents who send their kids to school during months of stock market volatility: less than expected 529 college savings plan balances.
Average 529 account size was $30,287 in 2021But families may now have lower balances, according to the College Savings Plan Network, financial experts say.
And it could be a “rude awakening” for parents scrambling to make their first payment in August, said certified financial planner Lisa Kirchenbauer, founder and president of Omega Wealth Management in Arlington, Virginia.
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Many 529 plans offer an age-based portfolio allocation, shifting from stocks to bonds as college approaches. But since bond prices and market interest rates move in opposite directionsBond prices have declined through 2022 Federal Reserve hikes rates,
“You might only have a 4% or 5% spread between what your stocks and your bonds are doing, and they’re both double digits,” said Bierke Sestok, a CFP and co-owner of Rightment Wealth Partners in Harrison. has disadvantages.” New York.
Smaller 529 accounts mean less money to cover college bills, and the solution may depend on several factors — how much you need when bills are due and other funding sources.
Some advisors suggest waiting to tap 529 accounts until the market bounces back. But there’s no guarantee that waiting six to 10 months will pay off, Cestok cautioned, especially with More rate hikes on the horizon,
alternative funding
While savings account yields are start crawling highReturns are still fairly low, making it an attractive option for covering short-term college expenses, Sestoke said.
Of course, paying cash with the 2021-2022 average tuition and fees for full-time undergraduate students may be difficult, according to College BoardFrom $10,740 for state government schools to $38,070 for private schools.
with rise in house pricesyou can consider a home equity line of creditOr HELOC, allows you to borrow money as needed, Sestoke said.
According to Bankrate, HELOC rates can range from around 2% to as high as 7%, depending on your credit.
another option, portfolio loans or lines of credit, allows you to borrow against assets in your investment account, depending on how risky your assets are. “With securities-based lending, you are likely to get a better rate,” Sestoke said.
Both options can provide temporary access to cash along with the ability to pay off the loan with your 529 account later. However, you will need detailed record-keeping to the IRS because withdrawals for non-qualified expenses can incur taxes and penalties.
You need to crunch the numbers by comparing the difference between the interest rates to how much your 529 account has gone down, Kirchenbauer said.
“Unfortunately, it’s not an easy no-brainer,” she said.