12 KIPLINGER’S PERSONAL FINANCE^ 03/
AHEAD
A little-known provision tucked
into a law enacted at the end of
2019 allows parents to use money
from their 529 college-savings
plans to help their children pay
off their student loans.
A provision in the SECURE Act
(see “Topic A,” on page 9) allows
owners of 529 plans to withdraw
up to $10,000, tax-free, to make
payments on the plan beneficiary’s
student loans. Account owners
can also withdraw up to $10,
to repay loans for each of the bene-
ficiary’s siblings.
In the past, families who had
a balance in a child’s account had
to change the beneficiary or pay
taxes and penalties on earnings
to withdraw the money.
Before withdrawing 529 money
to repay student loans, check with
your state’s plan. Although many
states will likely conform with the
federal law, some may require you
to return state tax deductions or
credits you received if the money
is used to repay student loans, says
Ross Riskin, an assistant professor
of taxation at the American College
of Financial Services.
Grandparents who have saved
in a separate 529 plan could see
benefits, too. Withdrawals from
a grandparent-owned 529 plan
are reported as untaxed student
income, which can reduce a stu-
dent’s financial aid package by
up to 50% of the distribution
amount. Now, grandparents can
also use the money to help their
grandchildren repay their loans.
KAITLIN PITSKERA NEW WAY
TO REPAY
COLLEGE
LOANS
GRADUATION GIFT
retirement plans, in
which investors tend to
hold for the long term and
invest at regular intervals.
Investors showed the
worst timing when they
invested in alternative
funds—investments de-
signed to provide returns
that aren’t correlated
with stock or bond mar-
kets. Those funds didn’t
benefit from a general up-
ward trend, surrendering
an average 0.61% annual-
ized return over the 10-
year rolling periods. But
investors fared much
worse, losing 2.05%.
Investors continue to
pile into low-cost, pas-
sively managed funds,
which should help them
over the long term, says
Sam Stovall, chief strate-
gist at investment re-
search firm CFRA. But
the fact that investors saw
worse results investing
in volatile funds indicates
that the shrinking “gap”
could expand when mar-
kets overall get choppier.
“There’s an old saying:
Don’t confuse brains for
a bull market,” Stovall
says. RYAN ERMEYTHERE MAY BE NO MORE
common mantra in the
investing world than “buy
low, sell high.” But study
after study shows that
investors tend to do the
opposite—piling into stocks
when the market is up and
selling when it plummets.
But a new report from
investment research firm
Morningstar indicates that
investors may be improving.
The study tracked average
annualized returns for mu-
tual funds and exchange-
traded funds for 10-year
periods that ended in 2014
through 2018. It then com-
pared the results with “in-
vestor returns,” which take
into account when investors
put money in and pulled
money out. U.S. investor
returns trailed fund re-
turns by an annualized
LET IT RIDEINVESTORS PROSPERED
BY STAYING THE COURSE
The long bull market made it easier to avoid
buying high and selling low.
0.45 percentage point, on
average—a marked im-
provement over the 0.
percentage point gap the
researchers found two
years earlier.
Investors in “allocation”
funds, which hold a mix of
stocks and bonds, earned
more than the funds them-
selves, indicating that the
majority of investors put
more money in the funds
when prices were low
than when prices were
high. Target-date funds,
which fall into this group,
are likely the main reason
for the category’s better
performance. These
funds, which invest in a
mix of stocks and bonds
that grows more conser-
vative as investors near
retirement, are predomi-
nantly held in workplaceInvestor returns vs. fund returns,
by fund category
Allocation5.5%6.3%3.4%5.4%–2 .1%5.3%6.8%4.0%5.9%–0.6%Alternative
Stock Fixed income OverallInvestor return Fund returnAverage annualized returns for the 10-year periods ending 2014-2018.
As of December 31, 2018. SOURCE: Morningstar Inc.