How well do you really know your 529 plan? Review these common investing terms to boost your 529 know-how.
You're a 529 plan account owner—it's time you talked like one! Use the chart below to demystify some of the financial terms you've seen on our website and on your account statements.
|529 plan (or 529 college savings plan)||An investment account that offers tax benefits to families as they save for higher education. The 529 plan got its name from Section 529 of the Internal Revenue Code.|
|Age-based portfolio||A series of investments that gradually becomes more conservative over time. Age-based portfolios complement your child's age and your comfort level with risk. The investments automatically adjust as your child approaches college age.|
|Asset allocation (or asset mix)||The mix of investments—like stocks, bonds, and short-term reserves—you hold in your account when you invest in an age-based option or an individual portfolio, both of which invest in securities like mutual funds. Your asset allocation should be based on your goals, time frame, and feelings about risk.|
|Bond||A debt investment in which you "loan" money to the issuer in return for future repayment of the loan plus interest. Bonds give you the opportunity to earn income and can help balance the risks associated with stocks.|
|Diversification||A way to manage the risk in your account by owning different kinds of investments—from the various asset classes (stocks, bonds, and short-term reserves) to asset classes with different characteristics (style, domestic versus international exposure, etc.).|
|Eligible educational institution||Any institution—including 2- and 4-year colleges, postsecondary trade and vocational schools, and postgraduate programs—in the United States or abroad that complies with Title IV of the Higher Education Act of 1965 (meaning the institution is 529-eligible). Use this tool to see if a specific institution is 529-eligible.|
|Exchange (or annual investment exchange)||Twice a calendar year, you can move the money in your 529 plan account to a different mix of investment options in the plan. Those who invest in individual portfolios rather than an age-based option might use this annual exchange to rebalance their investments back to their desired asset mix.|
|Individual portfolio||A static investment that won't automatically become more conservative over time. Each individual portfolio is generally made up of one or more mutual funds that invest in stocks, bonds, short-term investments, or a mix of asset classes. You can build a 529 plan account to complement your investing goals, time horizon, and feelings about risk by investing in one or more individual portfolios.|
|Mutual fund||In this type of investment vehicle, your money is pooled with money from other investors and invested in securities like stocks, bonds, and certificates of deposit (CDs). Mutual funds can provide investors with access to diversified, professionally managed portfolios, even if they don't have a large amount to invest.|
|Stock||A type of security that represents ownership in a corporation—giving you claims on part of the issuer's assets and earnings. Stocks provide you with the opportunity to grow your money and generally expose you to more risk than bonds.|
|Tax-deferred||When taxes are paid at a future date. In a 529 plan, the money your investments generate isn't taxed until you withdraw it—and if you withdraw it to pay for a qualified higher-education expense, it isn't taxed at all.*|