Tuesday, April 21, 2009

Paying for College: What to Do with a Tanking 529

Copied and Pasted by Jeffrey Kam

Buoyed by a run of good news in the stock market, I recently decided to check the balance in my son's 529 college savings account for the first time in many months. To my dismay, the account was still down some 40% from a year ago, far below the amount my husband and I had originally invested. Given the extent of the losses, I couldn't help but wonder: would it make sense to just ditch this thing? (Read "Investing in a 529 College Savings Plan.")


I'm sure I'm not the only one contemplating this question. Named after section 529 of the Internal Revenue Code, these plans can be a terrific tax-advantaged way to save for college, but many of these accounts have been seriously thwacked in the bear market. As of Feb. 28, half of 529 portfolios had one-year returns of -30%, and a third had returns of -40% or less, according to Morningstar, which tracks the performance of over 3,600 plan portfolios. In some cases, 529 investors may not have been well informed of the risks. On April 13, the state of Oregon sued the managers of its 529 plan, OppenheimerFunds, alleging that Oppenheimer took too much risk with its "ultra-conservative" and "conservative" portfolios, alleged mismanagement that Oregon claims resulted in a $36.2 million loss for 529 plan investors. (See how students are paying for college.)


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