What Are Ohio's Age-Based 529 Investment Options?
Ohio’s 529 Plan, CollegeAdvantage, offers different investment options to appeal to different types of savers — from age-based, set-it-and-forget-it portfolios, to conservative to more aggressive risk options, to build-your-own portfolio, to fixed-income options, and to cash preservation — for families who want to save for their children’s higher education. Ohio’s 529 Plan covers the qualified expenses for a higher education at a traditional four-year college or university, a two-year community or technical college, trade or vocational school, qualifying apprenticeship, or certificate program.
The available 529 investment options include ready-made, age-based portfolios, ready-made risk-based portfolios, individual investment options, and FDIC-insured banking options. Ohio’s 529 Plan teamed up with trusted industry partners such as Vanguard, Dimensional, and Fifth Third Bank to offer these investment choices.
Some of Ohio’ 529 Plan’s most popular investments are ready-made age-based portfolios — the “set-it-and-forget-it” higher education savings plans. These ready-made age-based portfolios align with college savings industry’s best practice of smoother glide paths, which is similar in concept to retirement target-date funds. A glide path determines the asset allocation mix within an investment option. For an age-based 529 portfolio, the asset allocation mix is managed through age bands. The asset allocations within the bands will automatically adjust to reduce the amount of riskier investments to more conservative ones as the time to for your child’s higher education draws near and you need the 529 funds to cover their qualified higher education expenses.
Advantage Age-Based Portfolios (AABP)
The AABP funds are based on the year your child will need to pay for their higher education. Therefore, your fund is determined by your child’s date of birth. This approach allows the 529 account to stay in a single fund the entire time as your child grows. As your student grows older, the asset allocation mix shifts from mostly equity investments to more conservative bond and money market investments. The asset allocation will rebalance quarterly, which will reduce risk regularly and allow the portfolio to better weather any market fluctuations.
AABP portfolios are a blend of passive and active fund management from multiple fund managers. The asset allocation of each underlying portfolio is actively managed by Ohio’s 529 Plan. Actively managed funds seek to outperform the market through the buying and selling strategies of the professional investment managers. Passively managed funds are included to add diversification and help lower fees.
There are currently 11 different AABP funds. Every two years, a new fund will be open for the next birth date range. On July 22, 2022, the 2042 fund was introduced with a birth date range of Aug. 1, 2022 – July 31, 2024. If you have a newborn child, congratulations! If your child is (or was) born during this date range and you’re interested in saving in the AABP, you would select the 2042 fund. For a chart of the available AABP funds and their current asset allocation mix, please review the Investment Option Choices.
Vanguard Ohio Target Enrollment Portfolios (TEP)
The Vanguard Ohio Target Enrollment Portfolios (TEPs) are passively invested savings that are invested based on the date that the beneficiary of your Ohio 529 account will need the funds to start their higher education, which is usually at age 18.
Like the AABP, TEPs follow a smooth glide path asset allocation strategy, which shifts from investments that have more risk, like stocks, toward more conservative investments, like bonds and cash, as your beneficiary approaches the start of their post-high school education. So, while your 529 beneficiary is young, their investments will be more exposed to fluctuations in the market, affording the ability to capture more growth from market upswings, while there is still time for investments to recover if there is an economic downturn. As your beneficiary grows older and approaches the intended start date for use of the funds, the asset allocation mix will adjust to reduce the amount of stocks and increase the amount of more conservative investments such as fixed-income and cash preservation options. Another advantage of a TEP is that no fund exchanges are required which will reduce market timing risk.
Unlike the AABP funds, you have flexibility to adjust investments to your risk tolerance within the TEP. The year of the target enrollment is a good starting point for fund selection. You may adjust the risk profile of your investments by moving up (to a TEP fund with a later date for more equity exposure) or down (to a TEP fund with a date that is sooner for more fixed income exposure) the glide path after the conversion is completed. Based on your risk comfort, you can open an Ohio Direct 529 account at a different year bracket than the one where your child would need the funds for their higher education. Or you can change into a different TEP with your current account. You will be using one of your two annual exchanges in order to move to a different TEP dated fund with a different risk profile. Please consult your own tax or legal advisor for advice.
The targeted enrollment date can be found in the name of the TEP fund. For instance, if your child will start kindergarten in 2023, then you can plan that they will enroll in college 13 years later. In that case, you would want to consider investing in the Vanguard Ohio Target Enrollment 2034/2035 fund.
For a chart of the Vanguard Target Enrollment Portfolios and the asset allocation mix within each age band, please review the Investment Option Choices chart.
Top 10 investments options in Ohio’s Direct 529 Plan
Are you curious what investment options Ohio’s 529 Direct Plan account owners have selected to put their higher education savings? If you check out the top 10 list, the two of the top three investment options are ready-made, age-based portfolios.
The top 10 investment options with the highest value of assets under management (fund balances in millions, as of March 31, 2022) are:
- Vanguard Ohio Target Enrollment Portfolio (ready-made age-based portfolio), $3,433.73
- Vanguard 500 Index Option (individual investment option), $1,140.62
- Advantage Age-Based Portfolio (ready-made age-based portfolio), $1,025.08
- Vanguard Aggressive Growth Index Portfolio (ready-made risk-based portfolio), $739.07
- Vanguard Growth Index Portfolio (ready-made risk-based portfolio), $369.16
- Vanguard Wellington Option (individual investment option), $328.42
- Vanguard Extended Market Index Option (individual investment option), $313.84
- Vanguard Moderate Growth Index Portfolio (ready-made risk-based portfolio), $243.46
- Vanguard U.S. Growth Option (individual investment portfolio), $241.84
- Vanguard Interest Accumulation Portfolio (individual investment option), $236.48
529 tools and calculators
Ohio’s 529 Plan has useful calculators and tools to help set up the 529 plan that works best for your family’s needs. Work with the College Savings Planner to shape your saving goals and see how the account can grow if you increase your contributions. The Tax Benefit Tool shows how much you can save with the tax-free growth in a 529 account when compared to a taxable savings account. Those tax-free earnings stay in the account and are yours to use to pay for higher education expenses. The Cost of Waiting Tool shows the power of compound interest as well as how it grows your college savings.
What if you want to change savings strategies?
Your investment strategy or risk tolerance may change at any point during the lifetime of your 529 account. It’s good to know that your 529 account does not have to stay in the same investment option the entire time. You can exchange the asset within your 529 account twice a calendar year for the same beneficiary.
If you’re ready to start saving for your child’s future higher education expenses, it’s simple to go online to open an account in minutes. A 529 account can be used for whatever comes after high school, whether vocational or trade programs, certificate programs or apprenticeships, community or four-year college or university programs. lf you already have a 529 plan, it might be time to review your new life-stage account strategy or perform account maintenance. A 529 education savings plan is an excellent alternative to student loan debt.
Learn, plan, and start with Ohio’s 529 Plan today at CollegeAdvantage.com.
This article was originally posted in August 2018 and has been updated to reflect new information for 2022.
Posted on July 08, 2022