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Market Turmoil Hits 529 Plans
The first rule for parents: Don’ t panic. By Jennifer Lea Reed
IT USED TO BE THAT ONLY HIGH SCHOOL SENIORS WERE anxious in the spring as they waited for college acceptance letters. But in 2025, some of their parents are just as apprehensive as they check their 529 college savings plan balances, thanks to a steep stock market selloff early in April followed by roiling volatility since.
“ The stock market has plummeted over the last few days. And every time there is a market downturn, a severe market downturn, a bear market, I hear from families who have 529 college savings plans who are wondering what they should do,” says Mark Kantrowitz, a Skokie, Ill.-based national expert on paying for college.
“ If their child is several years away from college, they shouldn’ t do anything, because eventually the stock market is going to recover when this tariff issue is resolved,” he says.“ If they were to sell now, they’ d be locking in their losses, and they would miss out on the eventual recovery.”
But what about the college freshmen this fall? Kantrowitz and two other advisors who are well versed in managing 529 plans have some strategic suggestions.
First, investors shouldn’ t panic, they say. Many, if not most, parents are invested through their plan in age-based vehicles that get more conservative as the child nears college, with the equities portion bottoming out at 10 %, 20 % or 30 %, depending on the plan.
“ So if it’ s 20 % stocks, and stocks went down 20 %, your losses are 20 % of 20 %, so just 4 %,” Kantrowitz says.“ On the other hand, if you bet it all on black and were in 100 % stocks, you’ re down 20 %.”
For those parents, the best strategy is to not take a distribution from the plan and to wait for as long as it takes for the market to recover at least somewhat. Using cash is an option, as is borrowing from other sources, such as family members. Even taking out a student loan could be a good deal.
“ Since 2019, 529 plans have had the ability to take a qualified distribution of up to $ 10,000 per borrower— that’ s a lifetime limit— to repay student loans,” Kantrowitz says.“ So you could take out a student loan now and then use a qualified distribution from the 529 plan to repay the debt after the 529 plan has recovered from any losses.”
But this would work only if the interest rate on the loans, currently around 6.5 % to 9 %, is less than the loss, he notes.
Joe Bogardus, a college planning specialist at the Barnum Center for College Planning in Shelton, Conn., says that now is a good time for parents to think about whether their 529 plan has a state tax incentive. If so, they can use what he calls a“ pass-through” benefit that takes the sting out of market shocks.
“ If you live in the state of Connecticut, as Continued on page 58
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