How to Manage Your 529 Savings Plan in a Volatile Market

Quick Answer

In a volatile stock market, it can be a good idea to adjust your child’s 529 college savings plan. Moving to more conservative investments and maintaining or increasing your contributions can help minimize losses and maximize growth.

Black girl and father putting coins into piggy bank, representing a 529 account

A fluctuating stock market may be wreaking havoc on the balance in your child's 529 college savings plan. What's a parent to do? Managing your 529 savings plan in a volatile market can be tricky, but the approach you take depends on how close you are to needing the money for college expenses. Learn what you can do to minimize 529 losses and adjust your plan for future growth.

Should You Pause 529 Contributions?

A volatile market shouldn't deter you from contributing to a 529 plan. Bear markets—typically defined as stock value declining by 20% or more from a prior peak—occur on a regular basis and typically last about a year. Stocks reached near-record highs just before the current bear market began; the contrast with these steep gains can make losses feel bigger. There have been 21 bear markets in the last 92 years, but the market has always bounced back

Market volatility often means shares in your 529 plan are available at lower prices. By purchasing shares when they're "on sale," the same 529 contribution can buy more shares than it normally would, which can pay off in the end. Known as dollar cost averaging, this practice helps reduce the risk of losses due to market ups and downs.

In fact, you may want to temporarily increase contributions during this time to cushion some of the losses your plan may experience.

Should You Move to More Conservative Investments?

Many 529 plans use an age-based investment strategy, shifting from riskier stocks to safer investments as a child gets closer to college age. In the current bear market, however, even lower-risk investments such as bonds have suffered losses. Moving money in your 529 plan to more conservative investments can preserve capital, but could cost you potential future gains. Your approach may vary depending on how close you are to needing the funds.

If Your Child Is in or About to Start College

Consider shifting money that will be needed for tuition soon to more conservative investments. For example, you might want to move the equivalent of several tuition payments into money-market funds.

Another option: Allocate new contributions to more conservative investments and keep existing funds where they are to cushion any losses in the higher-risk categories while still allowing for growth.

If Your Child Has Postgraduate Degree Plans

Money from a 529 plan can be used for qualified postgraduate education expenses, including medical school, which typically costs much more than other graduate programs. If your child is already in college, you'll want to keep the investments conservative. If your child is still in high school, the plan has more time to rebound, so an age-based strategy may be more appropriate.

If Your Child Is Very Young

It's difficult to watch your 529 plan balance dwindle. However, maintaining your investment cadence despite market downturns typically delivers better returns over time than pulling out of the market.

For example, 401(k) participants who kept investing after the Great Recession saw their account balances climb an average of 466% between 2009 and 2019, Fidelity Investments reports. While 401(k)s are not 529 plans, the theory of keeping your money invested stands. If you won't need the funds for a long time, consider increasing your contributions to take advantage of lower share prices. You can encourage grandparents and other family members to contribute to the plan too.

If You Have More Than One Child

Depending on how much your 529 plan has lost, you may want to investigate other options for financing your first child's college education and earmark the 529 plan for your other children. For example, if your first child qualifies for scholarships or decides to attend a more affordable school and doesn't need the 529 money, you can change the plan beneficiary to your second child and give the plan more time to recover. Be sure to adjust the plan's investment strategy to match the new beneficiary's college timeline.

Alternatives to Help Pay for College

There are other ways to pay for college outside of a 529 plan.

  • Look for scholarships and grants. Scholarships don't necessarily require academic excellence or financial need. You can find scholarships based on your field of interest, your ethnicity, religious affiliation, community organizations or ties to the military. Search for scholarships and grants at sites such as Scholarship Finder, Fastweb and Chegg.
  • Ask about a tuition payment plan. Some colleges allow you to split tuition into monthly payments, which can make the expense more manageable. While this won't reduce your overall costs, it can keep you from having to pay a full semester's tuition upfront.
  • Choose a less expensive school. Starting at a community college and then transferring to a pricier four-year school can save you significantly on tuition while allowing two years for your 529 plan to recover. Or shift your sights to a public, in-state four-year college instead of a more expensive private university. The average tuition for a two-year state college in the 2022-2023 school year was $3,860, compared with $10,940 for a public four-year college and $39,400 for a private four-year college, according to The College Board.
  • Find a job. Working part time may be an option to help your student save money for college. Your student can also chip in with their own part-time job (even just during school breaks).
  • Consider getting student loans. You can use funds from a 529 plan to pay back a lifetime maximum of $10,000 of student loans per beneficiary. This includes parent PLUS loans; you'll just have to make the parent borrower the 529 plan's beneficiary. If your student qualifies, opting for federal student loans instead of private ones is usually a better choice financially.

The Bottom Line

Like any investment, a 529 plan includes the risk of losses. But over time, a consistent investment strategy typically delivers results. Maintaining (or even increasing) contributions to your 529 plan and possibly moving some money into more conservative investments can help ensure you're prepared when tuition comes due.

While you're assessing your student's finances, why not get them started on building credit? Adding a child as an authorized user on your credit card or encouraging them to apply for a student credit card can put them on the path to a solid credit score. Have your student sign up for free credit monitoring to watch the results of their efforts.