Our 4-year-old son has $100,000 in his 529 account. Should we buy him stocks instead?
“He also has a brokerage account, but there’s only $500 in it.”
The question posed by this reader highlights a common dilemma faced by parents who have been diligent about saving for their child's education. A 529 college savings plan is a tax-advantaged vehicle designed specifically for education expenses, and it's clear this parent has taken advantage of it. With $100,000 accumulated, it's understandable they might consider alternative investment options, such as stocks, especially given the relatively small amount in the brokerage account.
However, it's essential to consider the purpose and benefits of a 529 plan. These plans offer tax-free growth and withdrawals when used for qualified education expenses, making them an attractive option for long-term education savings. In contrast, stocks or other investments in a brokerage account don't offer the same tax advantages for education expenses. The parent should weigh the benefits of maintaining the 529 plan against the potential benefits of investing in a brokerage account, which might offer more flexibility but also lacks the specific tax advantages.
To watch next: The parent should assess their overall financial goals, risk tolerance, and time horizon before making a decision. They may also want to consider consulting a financial advisor to determine the best strategy for their child's education savings and other financial objectives. Additionally, it's worth exploring other investment options within the 529 plan, such as age-based portfolios or individual investment portfolios, which might offer a more diversified investment approach.
Originally reported by marketwatch.com. BrokerNews adds analysis for finance & markets readers.