[Updated with the new rate for 2021.]
Most 529 plans offer mutual funds as investment options. After the financial crisis in 2008-2009, many 529 plans added more conservative, principal-guaranteed options offered by banks and insurance companies. Because the money in 529 plans is typically long term, these principal-guaranteed options sometimes offer a higher yield than bond mutual funds. They are especially good for students who are already in college or are about to enter college.
Colorado’s CollegeInvest Stable Value Plus 529 Plan offers a stable value fund by the insurance company Nationwide. The interest rate resets every year on January 1. The rate guaranteed from January 1 through December 31, 2021 is 2.09% after admin fees. By comparison, the 30-day SEC yield on the Vanguard Total Bond Market Index Fund is 1.14% as of November 30, 2020.
The stable value fund in the plan is only guaranteed by Nationwide. Nationwide is rated Aa3 by Moody’s and A+ by S&P. Although Nationwide isn’t FDIC, I would be OK with a guarantee by Nationwide.
You don’t have to live in Colorado to use Colorado’s 529 Plan. You can transfer money from one 529 plan to another 529 plan once every rolling 12 months for the same beneficiary, although some states require a claw-back of the previous state income tax deductions when you transfer out. See Rollover a 529 Account From One Plan To Another.
In the current low-yield environment, Colorado’s CollegeInvest Stable Value Plus 529 Plan offers an attractive yield together with a guarantee of the principal value. It’s not the only 529 plan that offers a stable value fund. See other options in 529 Plan For High School Seniors and College Students.
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