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 $100,000 balance in a 529 plan is a significant nest egg, and it's natural to consider alternative options for investing that money. However, it's essential to understand the benefits and limitations of 529 plans and other investment vehicles.
One key consideration is that 529 plans offer tax benefits and flexibility that may not be available with other types of accounts. For example, earnings on 529 plan investments grow tax-free, and withdrawals are tax-free if used for qualified education expenses. Additionally, 529 plans often have high contribution limits and may offer state tax deductions or credits. In contrast, a brokerage account, like the one mentioned with a $500 balance, is a taxable account that doesn't offer the same tax advantages.
To determine the best course of action, this reader should consider their overall financial goals, risk tolerance, and time horizon. They should also evaluate the investment options within the 529 plan and compare them to other potential investments. What to watch next: how the reader's investment strategy aligns with their goals and whether they are considering factors like fees, diversification, and liquidity when evaluating their options.
Originally reported by marketwatch.com. FundNews adds analysis for finance & markets readers.