Allocating resources between your retirement accounts, 529 plans and personal savings accounts can be a tough balancing act for most parents. Throw a global pandemic and volatile markets into the mix, and you may feel like someone juggling bowling pins while riding a unicycle. To help restore your balance, here are some questions to consider:
Am I still on track?
This depends on your goal, whether it be a specific dollar amount, or a percentage of college costs you’d like to cover. We recommend using an online college savings calculator to track the progress toward achieving your goals.
Should I keep contributing to my 529 plan?
If you can afford it, yes. If you’ve been forced to take a pay cut or were furloughed during the pandemic, it’s important to make sure you can first cover basic expenses. If there is any extra income remaining, you can decide how much to allocate toward 529 plans. New York State gives a tax deduction for the first $10,000 contributed to a 529 plan.
If you’re worried about market fluctuations, it may be time to examine your savings strategy. Rather than making an annual lump-sum contribution, consider dollar cost averaging where you contribute the same dollar amount each month. When markets are up you will buy fewer shares, but when they fall you will buy more. Dollar cost averaging takes the emotion out of investing.
Should I temporarily redirect retirement savings to my 529 plan?
Favoring college saving accounts over funding your retirement plan will be a costly mistake for most people. Consider first contributing to your retirement plan up to your employer match. With any remaining funds you can then decide how much to direct toward college saving, debt reduction or personal savings.
Does my asset allocation still make sense in this market environment?
In the last few months, we’ve seen a 35% decline in the stock market, followed by the largest 50-day rally in S&P 500 history (which dates back to 1957). Amid this volatility, be sure that you are comfortable with the allocation in your 529 plan. Most plan providers offer an age-based allocation portfolio. Young children start with an aggressive stock allocation, and slowly become more conservative as the child ages, with most of the portfolio invested in short-term bonds or cash by the time they turn 18. This “set it and forget it” technique works well because it takes some of the time, hassle and stress out of managing the account by yourself.