IRS Increases Flexibility of 529 Plans
The U.S. Internal Revenue Service has increased the flexibility of 529 plan contributions for 2009.
Effective this year only, you can change your 529 plan investment strategy (i.e., the funds you are investing in) twice per year. Previously you were limited to doing it once per year.
The “once per year” rule stung a lot of 529 plan participants in 2008. For example, consider someone whose kid was going to school in 2 years. In January 2008 they changed their investment allocation. Then the stock market started tanking and they wanted to move to safer investments to preserve capital given their short term investment horizon. Unfortunately, they couldn’t do so because they had already changed their allocation during the year. Under the new rule they could have changed it again.
Although you can now change it twice per year for this year, investors with a longer term horizon should be wary about shifting investments into lower risk assets just because the market is down. If this rule is not renewed, you will only be able to change once in future years.