The theme this week on the One Minute Retirement Tip podcast is: How to save $100,000 for your grandkids college.

Yesterday, I talked about why the 529 college savings plan is the account of choice for my kids and all of my clients. 

Today, I’m talking about how to invest the money once you’ve contributed it to the 529 college savings plan. 

The strategy is based on the idea that it’s best to maximize growth in the early years, while the child is young, then switch over to a more conservative investment strategy when the child is getting close to college, so a recession and a big drop in the stock market won’t wipe out half of those college savings when the child is a senior in high school and just found out they got in to their dream school - that really expensive liberal arts college. 

There are a couple ways you can approach investing in the 529 college savings account using this strategy. 

The first is to utilize a target date series. Many fund companies now offer 529 funds that operate similar to target date retirement funds, but for college instead. They’re invested based on when the child is going to start college and will be heavily in stocks while the child is young, and gradually become more conservative as college approaches. 

You can pick a 529 provider that offers this option, so that’s what I would recommend. Many people think they’re stuck with whatever is offered in their state, since each state has it’s own 529 program. I live in Oregon, and I don’t much care for the offerings in my state, so all 3 of my kids 529 plans are invested in the Virginia state plan. I’ve never even set foot in Virginia - and neither have they. So shop around and pick a 529 plan based on the quality of their offerings, not which state you live in. Just keep in mind that you may miss on on certain tax breaks if you go elsewhere, so it’s important to understand the 529 plan rules and benefits that exist in your state. 

If you would rather manage the investments yourself without the aid of a target date college fund, the same principles apply. Try to maximize growth in the early years by being heavily invested in stocks. Around age 15 is when I like to switch over to a more conservative strategy, typically moving about 25% of the account value every year to bonds and cash until the child starts college. 

You could eek out a bit more growth for longer, especially since the funds are going to be used over a period of 4 years in many cases, but chances are you’ll exhaust the 529 plan before the end of college, and it’s just not worth the risk for me to keep 529 plan funds invested in the stock market once college starts. Preservation is way more important at that point if you know you’ll need the money for college. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip.  

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance