In an attempt to make saving toward college more financially attractive, 529 college-savings plans are beginning to incorporate exchange traded fund options to provide added diversification and to hedge against market volatility.
For instance, Nebraska now includes four ETFs in three of its 529 plans, one of New York’s plans has six ETFs and Nevada’s Upromise 529 is almost exclusively comprised of ETFs, reports Annamaria Andriotis for SmartMoney. [State Street Launches 529 Plan with ETFs]
The 529 savings plans are a tax-advantage method for saving toward future college expenses. Investors can establish a college savings fund that pays for a beneficiary’s room, board, mandatory fees, books, computer and tuition. Investments in the savings plan are not subject to federal tax as long as the money is used for college expenses. Currently, mutual funds make up the lion share of the college-savings 529 industry.
“529s are looking more like investors’ broader portfolios,” Laura Lutton, head of 529-plan research at Morningstar, said in the article.
The college-savings plans have undergone changes over the last couple of years as investors became more cautious in the wake of the financial crisis.