Coronavirus hit your college savings? Here's what you need to know

Incoming college Freshman and family talk about 529 college savings plans during Coronavirus
Posted at 5:26 PM, May 05, 2020
and last updated 2020-05-07 13:48:48-04

CLEVELAND — Anyone with investments in the stock markets, you’ve felt the pain of the coronavirus. That includes savings for college. Here’s what you can do to help your higher ed goals rebound.

“I’m going to be studying, hopefully, astrophysics,” said 17-year-old Garrett Millstone from Solonl, who has high hopes heading to college in California this fall. He’s been attempting to prepare for his expenses — that is, until the pandemic hit.

“I’ve also been working a little bit trying to save up some money… but even my business has been hit,” said Garrett.

He’s a professional break dancer whose performances at parties have been broken for now. “Everything’s up in the air,” he told us.

His dad Aaron Millstone knows the costs can be crazy.

“The price tags for colleges are pretty jaw dropping,” he told us.

That’s why years ago he set up a 529 college savings plan. For many, those investments have seen big drops recently after pandemic hit. “There’s an impact. There’s no way around it… the market’s down 20%-30%,” said Aaron.

“The quickest sell-off we’ve ever seen in the history of the United States stock market,” said Bryan Bibbo. He’s a financial expert with the J.L. Smith Group. He told us the markets have recovered a bit, but if you have a 529 plan, now’s the time to make sure it has proper allocations.

For students one or two years away from college, there’s a strategy. “(Investments) should have between 0 to 20% in equities which is the stocks,” said Bibbo. “The other 80% or so should be in conservative investments.”

Conservative means things like bonds, certificates of deposit (CD), or money market accounts. “That way during this time when we had this market crash, you’re able to maybe sell off a CD to pay for that first or second semester of college,” said Bibbo.

There are age-based plans, too, where if the student is younger, the investments are more aggressive. If he or she is older, the money transitions to safer savings. “This is a nice way…because we all have busy set it and forget it,”said Bibbo. “And it will go down that age-based plan and it will do it automatically for you.”

Now, if COVID-19 has hit your finances really hard, you can take money out of your 529 plan and pay bills. But just beware, you’ll get hit with a 10% penalty fee and more. “If I have $10,000, (and) it grew to $20,000, and I take it out and use it for personal use well, guess what, that $10,000 of growth will be taxable to me,” Bibbo explained.

Thankfully, Aaron didn’t have to use that option. He has an age-based plan for Garrett that, even though the markets are bad now, is relatively okay.

“Over the last 10 years the plan’s grown pretty well. So, while we’re down today, overall we’re better off than if we had done nothing,” said Aaron.

Various states have their own 529 plans. Morningstar ranks Ohio’s as a Silver performing plan, just under those that get gold rankings.