Planning for college expenses? You have options.

Investing & Retirement

Traditionally, 529 savings plans have helped make a child’s college dreams possible. Now, automated investing may also allow parents to help with tuition and other costs. Find out how.

When you think about planning for college expenses, what’s the first thing that comes to mind? For many parents, it’s the 529 plan. But a recent spike in the popularity and accessibility of robo-advisors has made them a viable option for long-term investing goals. Can automated investing supplement the 529—or replace it altogether? Let’s take a closer look.

Saving with the 529 plan

The 529 plan is a tax-advantaged investment vehicle that’s generally regarded as the most popular way to save for college. Two types of accounts fall under the 529 plan:

  1. A savings account that’s invested in mutual funds, exchange-traded funds (ETFs), and other similar investments.
  2. A prepaid tuition plan that secures the price of tuition for eligible public and private colleges.

The 529’s primary draw is tax-free growth. Plan participants don’t pay federal or, in most cases, state tax on earnings when the funds are used for qualifying education costs. And account holders can switch beneficiaries without penalty in the event a child decides to forgo college.

Things to consider about the 529

If you’re on a fixed budget or prefer more control over your investments, you might consider the following:

  • Cash to start – Depending on the state, some 529 plans may require an initial deposit ranging from $500 to $1,000.
  • Fees and penalties – Funds used for nonqualifying expenses are taxed as income and subject to a 10% penalty.
  • Minimal flexibility – A 529 account has limited investment options, which may frustrate more knowledgeable investors.
  • Limited coverage – The prepaid tuition option only covers the cost of attendance and doesn’t account for other college-related expenses (room and board, food, books, etc.).

Planning for college with automated investing

Automated investing with a robo-advisor like Truist Invest—offered by Truist Advisory Services, Inc.—may help investors grow money long term to meet a variety of financial goals. Increased wealth. Big purchases. Retirement. And yes, college savings. How you spend any earnings is completely up to you.

Like the 529, robo-advisors can make investing simple and automatic. They use advanced algorithms to create and manage a portfolio based on your financial goals, risk level, and investing time horizon. You can create an account in minutes and connect a bank account to set recurring contributions that suit your budget.

Plus, they offer flexibility and control over your investments. At any time, you can update your goal, risk level, contribution amount, and timeline to impact your earnings. Robo-advisors analyze your portfolio daily and adjust where necessary to ensure your goals stay on track.

Things to consider about automated investing

Assets such as indexes, stocks, and ETFs aren’t subject to the same tax codes as a 529 plan.1 While there are no penalties for withdrawal from a brokerage account, the earnings are taxable as income. Also, the amount held in brokerage accounts is part of your expected family contribution (EFC), which could reduce a student’s college aid eligibility.

Is it too late to start saving?

Ideally, you want to establish a college fund as early as possible and front-load your contributions so you can take advantage of longer time horizons and compound interest. Some 529 plans change asset allocations when a beneficiary reaches a certain age, becoming more conservative to protect the investment.

For many parents, saving a lot up front isn’t possible with the cost of child care, housing, monthly expenses, and retirement contributions. In fact, many parents don’t have abundant room in their budgets until their children age out of child care. Automated investing can help parents invest aggressively on a timeline that better suits their finances.

There’s no right or wrong way to save for a child’s future. What works in the beginning may require adjustments along the course of the investment, and that’s OK. The most important thing is to prioritize education savings—and understand that the best strategy is one that complements your overall financial plan.

Talk to a Truist Wealth advisor.

1 Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.

Investment and Insurance Products:

  • Are not FDIC or any other Government Agency Insured •Are not Bank Guaranteed •May Lose Value

Before investing, investors should consider whether their home state or their designated beneficiary’s home state offers any state tax or any other benefits such as financial aid, scholarship funds, and protection from creditors that are only available to residents of that state. Any state tax benefits associated with a 529 plan apply only to residents of the state sponsoring the plan. 529 plans value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than their original cost.

Withdrawals may be subject to state income taxes depending on the participant’s state of residence. Non-qualified withdrawals are subject to a 10% penalty. Participation in a 529 plan does not guarantee that contributions and the investment return, if any, will be adequate to cover future tuition and other higher education expenses or that a beneficiary will be admitted to or permitted to continue to attend any institution of higher education.

Neither Truist Financial Corporation, nor any of its affiliates underwrite 529 plans.

Exchange-Traded-Funds (ETFs) values will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. ETFs trade like stocks on the open market, which in most cases involves a commission.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.