Abstract
In this paper, we establish why “prefabricated” asset allocation schemes mandated by some education savings programs might be suboptimal. Then, using the New York’s College Savings Program as an example, we simulate and then compare end of period wealth accumulated in both a tax preferred but regimented asset allocation plan, and in a nontax protected plan.We find, first, that the longer the child participates in the plan, the greater the benefit. Second, participants in higher tax brackets derive greater benefits; adherence to prespecified asset allocation for low tax bracket investors often results in return loss that overshadows the tax benefit.
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