Maximizing 529 Plans: Fidelity's Investment Strategy Evolution

If you're looking to change your investment strategy for a 529 plan with Fidelity, there are a few things you should know. Firstly, you can change your future investment allocations as often as you like, but you can only change your current asset allocations twice per calendar year or upon a change of beneficiary. This is because, per IRS rules, changing your current investments more than twice a year may incur taxes. You can make these changes online by logging into your Fidelity account and following a few simple steps.

When choosing a new investment strategy, it's important to select an investment mix that suits your risk tolerance and goals, and that has the potential for growth to help you reach those goals. Fidelity offers a range of investment options, including age-based portfolios that automatically adjust the asset allocation based on the beneficiary's age, and static or individual fund portfolios that allow you to customize your investments.

Before making any changes, be sure to review the available investment options and consider factors such as in-state tax benefits, plan management, fees and expenses, and plan performance.

Changing future investment allocations

To change your future investment allocations, follow these steps:

• Log in to your Fidelity account.
• Expand the "Accounts & Trade" tab and select "Portfolio".
• Select the 529 account.
• Click on the "Summary" tab and find the tile labeled "I want to...."
• Choose "Change My Investment Selections".
• Make your desired changes.

Please note that you can only change your current investment allocations twice per calendar year or upon a change of beneficiary. If you have any questions, you can call Fidelity at 800-544-1914 or reach out to their 529 team, who are available Monday to Friday from 8:00 a.m. to 9:00 p.m. ET.

Changing current asset allocations

Changing your current asset allocations, or how your plan's existing assets are invested, can be done twice per calendar year or upon a change of beneficiary. This is according to IRS rules.

To change your current asset allocations, you will need to select the account and have the beneficiary's name, Social Security number, and date of birth available.

• Log in to your Fidelity account.
• Expand the "Accounts & Trade" tab and select "Portfolio".
• Select the 529 account.
• Click on the "Summary" tab and find the tile labeled "I want to...."
• Choose "Change My Investment Selections".

Note that you can change how your future investments are allocated as often as you like. For example, if your plan's assets are currently invested in a moderate growth portfolio, but you want future contributions to go into an age-based portfolio, you can make this change at any time.

Choosing an investment strategy

When choosing an investment strategy for a 529 plan, it's important to consider your goals, risk tolerance, and time horizon. Fidelity-managed 529 plans offer a range of investment options, and you can choose the one that best suits your needs. Here are some key factors to keep in mind when selecting an investment strategy:

In-state tax benefits

Some states offer tax benefits to residents who contribute to in-state or out-of-state 529 plans. It's worth checking if your state offers any such benefits before deciding on a plan.

Plan management

Consider which financial services company is managing the plan and what types of services they offer. Fidelity, for example, offers a range of investment options and professional management.

Investment options

Most 529 plans provide various investment options, including age-based portfolios that adjust the asset allocation based on the beneficiary's age. This can help lower investment risk as the child gets closer to college age. You can also choose a static or individual fund portfolio to customize your investments according to your risk tolerance and preferred exposure.

Fees and expenses

When selecting a 529 plan, it's important to consider the account management fees and management fees on underlying portfolios. Be sure to review the expense ratios and mutual fund fees, as these can vary by plan.

Plan performance

To assess the performance of a 529 plan, review the 1-, 3-, 5-, and 10-year performance figures when available. This will give you a good indication of how the plan has been performing over time.

Remember, you can change your investment strategy within a 529 plan, but there are some restrictions. Per IRS rules, you can change current investments twice per calendar year or when you change beneficiaries. However, you can change the investment instructions for future deposits at any time. Therefore, it's essential to choose an investment strategy that aligns with your financial goals and risk tolerance while also considering the potential for growth.

Changing beneficiaries

Changing the beneficiary on your 529 plan account is a straightforward process. To get started, you will need to provide the beneficiary's name, Social Security number, and date of birth. You can make these changes online, and no new account is required. However, it's important to note that you can only change the beneficiary of an Individual 529 plan. For Custodial, UGMA/UTMA 529 plans, the beneficiary cannot be changed as this is considered an irrevocable gift to the minor.

When changing beneficiaries, it's essential to choose an eligible family member to avoid federal income taxes and the 10% federal penalty. Eligible family members include:

• Son or daughter
• Stepchild
• Brother, sister, stepbrother, or stepsister
• Father, mother, or ancestor
• Stepfather or stepmother
• Son or daughter of a brother or sister
• Brother or sister of a father or mother
• Son or daughter-in-law, father or mother-in-law, brother or sister-in-law
• Spouse of the beneficiary or the spouses of individuals listed in options 1-8
• Any first cousin

Additionally, you can change your investment allocations when updating your beneficiary. You can change your future investment allocations as often as you like, but you can only change your current asset allocations twice per calendar year or upon a change of beneficiary.

If you have any questions about changing your beneficiary or investment allocations, you can contact Fidelity at 800-544-1914.

In-state tax benefits

Some states offer favorable tax treatment or other benefits exclusively to residents who invest in their own state's 529 plan. These benefits can include in-state tax incentives for contributions, as well as other advantages such as financial aid, scholarship funds, and protection from creditors. Therefore, it is essential to research your own state's 529 plan to understand the specific benefits offered to residents.

For example, the Massachusetts 529 plan, MEFA's U.Fund College Investing Plan, offers in-state tax deductions for residents saving for a child's education. Single persons may claim up to a $1,000 deduction, while married persons filing jointly can claim up to a $2,000 state income tax deduction. Additionally, qualified withdrawals are free from both federal and Massachusetts income taxes.

If Fidelity does not manage a plan for your state, you may want to consider their national plan, the UNIQUE College Investing Plan, sponsored by the state of New Hampshire. However, be sure to compare it with your state's plan, as your state may offer exclusive benefits that could provide added value.

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