Today is May 29, the day affectionately known as "529 College Savings Plan Day." So today it seems especially relevant to address how we are navigating the economic impact of covid-19 on the Arkansas 529 Education Savings Plan, which is administered by my office.
I realize that so many people are hurting. From under- and unemployment, to businesses shutting down or being forced to change business models at the drop of a hat, our world has been turned upside down. It's even affected the way our state does business--moving public meetings from in-person to online and encouraging financial transactions, even in the state Treasury, to be done electronically or with minimal person-to-person contact.
Since mid-March when covid-19 first appeared in Arkansas, our state has suffered the same effects the pandemic has had on the world. Interest rates dropped by roughly 1.5 percent over the span of just two weeks, which sent the markets into a frenzy.
Across the country, individual investors watched as their retirement and college savings accounts reacted to the markets' near-constant ups and downs. But Americans, including Arkansans, are resilient.
As the markets declined, the Arkansas 529 Plan actually weathered the storm quite well. While our plan's assets did decrease in March, we were able to make up for six months' worth of losses in April. What that says to me is that Arkansans haven't taken their eyes off the long-term goal. In fact, we saw the highest number of Arkansas 529 accounts open during April in the weeks following the first distribution of federal stimulus checks. Our account owners are being diligent and focusing on their long-term goals for their children's education.
Our state is beginning to cautiously reopen and we're all trying to resume some semblance of normal. As we do, I'd like to address some common questions we have seen regarding people's 529 plans amid the covid-19 pandemic.
You might be wondering what will happen to the money you've invested or whether you should adjust your asset allocation. The first thing to remember is that your child's dreams and your goals for their future are long-term. Though no one can predict what the market will look like in the future, we do know that market downturns happen and, likewise, so do recoveries. As you evaluate your savings goals, it's important to remain focused on your overall objectives and time horizon.
If you are considering changing your asset allocation, I urge you to carefully review your investment options and the available alternatives before making any changes. Generally speaking, most 529 plans offer age-based investment options, which are designed to balance risk and return in light of your child's age. Additionally, most plans--including Arkansas'--offer other types of investment options. Keep in mind, though, that changes to your investment options can only be made twice per calendar year.
If your child is entering college in the fall, talk to the school's financial office about all the options available to you to cover the costs of the coming semester. Initiating the conversation early will give you an idea of how to proceed once classes begin.
If your child attended college in the spring semester and received a refund due to the covid-19 pandemic, it's important to remember that Arkansas 529 funds must be used for qualified expenses. This means that if you received a refund for tuition, room and board or other qualified expenses, you should re-contribute your refund into your 529 plan account. If the funds aren't used for qualified education expenses as outlined in your initial paperwork, you could be subject to a 10 percent penalty for early withdrawal, or even taxes on the earnings. The government has extended the deadline to do so to July 15.
Above all else, please discuss your current situation with a tax or investment adviser.
Though no one can guarantee exactly what the market will look like tomorrow, taking steps today to prepare for the future can be beneficial in college savings, just as it can be with retirement.
If you are in a financial position to do so, continuing to invest in your Arkansas 529 plan may be beneficial in the long run.
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Dennis Milligan is Arkansas Treasurer. His office administers the Arkansas 529 Education Savings Plan, which has seen a growth of 63 percent since 2015 under his administration.
Editorial on 05/29/2020