Thursday, January 07, 2010

College 529 Plan Accounts Are Now Breakeven

In preparation for making 2010 contributions, I reviewed the current status of our college 529 savings accounts. We originally opened the accounts in December, 2005 and have made the maximum state tax deductible contribution for each year. Through 2008, we invested the contributions evenly in the Aggressive Growth, 500 Index, Extended Market, and International funds with Vanguard. In 2009, we changed our contribution mix and added to the Aggressive Growth, Extended Market and Morgan Growth (new for 2009) funds.

The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to break even. Most of the improvement in the 529 accounts had occurred by 10/14/09, the date of the previous update. Here are the results as of 1/6/10:

Total Return
Total Return
Total Return
Vanguard Aggressive Growth Index Portfolio




Vanguard 500 Index




Vanguard Extended Market Index




Vanguard Developed Markets International Stock Index




Vanguard Morgan Growth





- 28.74



Previously, this analysis had shown me the high volatility of equity investments in our 529 plans. When it gets closer to needing the funds, I will definitely want to avoid this level of fluctuation. Thus, I plan to move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In addition, this analysis shows the benefit of continuing to make contributions as the market declines, i.e. dollar cost averaging downward. The 2009 contributions were distributed among the Aggressive Growth Index, Extended Market Index and Morgan Growth Index funds. Those funds are now above the amount principal contributed. The other two funds, which did not receive any contributions in 2009, are still below the original principal, being down 11.24% and 9.91%

We will continue to make the maximum state tax deductible contribution for 2010.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

No comments: