Education Planning Common Questions |
What recourse do I have if I'm unhappy with my state savings plan's investment performance?
Answer
Unfortunately, not as much as you would probably like. Under federal law, 529 plan account owners aren't allowed to directly control their investments. This can present a problem if your state savings plan investments are not performing as well as you expected.
But you may have some options. First, depending on your plan's specific rules, you might be able to direct any future contributions into one or more portfolios that are different from what your existing contributions are invested in. Also, states may allow you to change your investment option for your existing contributions once per calendar year. But it's up to individual states whether to allow this flexibility. Check with your specific plan for more details. Keep in mind, though, that even if you can change your investment portfolio, you can never choose the underlying investments that a portfolio invests in – the plan's money manager is responsible for this.
Besides these options, there's a more drastic (though effective) way to get rid of state savings plan investments that are performing poorly. You can roll over your state savings plan account to another 529 plan (state savings plan or prepaid tuition plan) once every 12 months without penalty and without changing the beneficiary. Since different plans offer different investment choices, the rollover option gives you a way to exchange poorly performing investments for new ones. Please note, however, that rollover contributions may not be eligible for a state income tax deduction if your state offers one for 529 contributions. Check with your tax professional for more information.
Finally, if you have more than one child, you might consider changing the beneficiary of your account. If your account was previously invested in an age-based portfolio (one that depends on your child's age and gradually shifts to more conservative investments as your child grows older), many plans will change the investment option to a different portfolio to reflect the new beneficiary's age. But if the plan doesn't impose a new age-based portfolio on you, you might still be given the opportunity to change your investment option for the new beneficiary, because the IRS has given states the discretion to allow such an investment change when a new beneficiary is named.
