Key Points
- The stock market has started 2025 down almost 5% YTD, which can be challenging for families starting college this fall depending on 529 plan investments.
- Long-term investors (10+ years until college) should stay invested in stocks to maximize growth potential despite market fluctuations.
- High school families or those starting college soon should prioritize protecting their savings by moving funds into safer investments.
The stock market’s recent decline has left many families wondering how their 529 plans will be affected. With tuition costs rising and investments fluctuating, parents and grandparents may feel uncertain about whether to stay the course or make adjustments. The right strategy depends largely on how soon the funds will be needed.
529 plans are designed to grow over time, but when the market experiences a downturn, it’s natural to reconsider investment choices. Should families move to more conservative assets to protect their savings, or should they ride out the volatility?
The best 529 plan investment strategy varies based on whether college is more than a decade away, just a few years off, or right around the corner.
Long-Term Investors: More Than 10 Years Until College
If your child is still in elementary school or younger, market downturns shouldn’t cause panic. With more than a decade until college, there’s plenty of time for investments to recover. Historically, the stock market has rebounded from corrections, often within a few years.
What to Do:
- Stay Invested: Maintaining a stock-heavy portfolio can help maximize long-term growth.
- Continue Contributions: If you have a set schedule for investing, keep adding funds. A down market means you’re buying investments at a discount.
- Rebalance Annually: If your plan includes an age-based portfolio, check that it aligns with your child’s timeline. Some plans shift too conservatively too early, limiting growth potential.
Middle School Families: About 5 Years to Go
For families with children in middle school, the balance between risk and reward becomes more important. With a shorter time horizon, heavy stock exposure can lead to volatility, but there’s still room for market recoveries.
What to Do:
- Shift Gradually: Consider reallocating a portion of funds from stocks into bonds and cash equivalents to protect against further market declines.
- Use Dollar-Cost Averaging: If making additional contributions, spreading investments over time can reduce the risk of buying at a high point.
- Monitor Market Conditions: A sharp rebound could present an opportunity to secure gains by moving to a more stable mix of assets.
High School Families: College Starts Soon
Families with students in high school or about to start college should prioritize protecting funds already saved. With less time to recover from market dips, a cautious approach can prevent losses from impacting tuition payments.
What to Do:
- Move to Safer Investments: Most 529 plans offer conservative portfolios with higher bond or cash allocations. If your plan hasn’t already shifted, consider reallocating funds.
- Withdraw Smartly: If tuition payments are due soon, avoid withdrawing from stocks in a down market. However, remember that withdrawals from a 529 plan must be made in the same calendar year as the expense.
- Utilize Direct Payments: If market losses have reduced account values, grandparents or other family members can consider paying tuition directly, which won’t count against financial aid calculations.
- Consider Student Loans: You can borrow student loans, and potentially use the 529 plan to repay the student loans in the future.
Planning For Stability
A declining stock market doesn’t mean families should panic, but it does call for a smart strategy. Younger children’s 529 plans can stay invested to recover losses, middle schoolers’ plans should shift gradually to reduce risk, and high schoolers’ savings should focus on preserving funds.
However, we don't recommend even high school families go "all cash". There's still time between now and future years of college, and you could be costing yourself significant growth if you sell all your investments.
By making adjustments based on a child’s college timeline, families can protect their investments while ensuring funds are available when needed.
Staying informed and reviewing your plan’s investment options can help you navigate market downturns with confidence. If you're not sure how to monitor your investments, check out our favorite portfolio tracking tools.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.