529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios

Abstract

The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) introduces some of the most sweeping tax law changes in more than 30 years and enhances the flexibility investors have when using 529 college savings plans for more than just qualified higher education expenses. Investors can now use funds from these accounts to pay for qualified K–12 tuition expenses without being taxed or penalized on the earnings associated with the distributions at the federal level. While this new provision may make 529 college savings plans more attractive, investors may now need to reevaluate their investment holdings in these plans especially if they are using age-based portfolios and are planning for pre-undergraduate education expenses, post-graduate education expenses, or are considering using a combination of in-state and out-of-state 529 college savings plans to achieve their education planning goals.

TOPICS: Portfolio management/multi-asset allocation, fundamental equity analysis