529 Strategy with reduced contributions going forward

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Topic Author
RandyAdams1978
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Joined: Sun Dec 23, 2012 6:36 am

529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

I'm getting divorced and I was hoping to get some suggestions about existing 529 account asset allocation.

Ohio residents. Three minor children. Ages 15, 13 and 8. Each has their own Ohio 529 account, with me as owner. The accounts were only recently opened - Dec 2012. Each account has roughly 8.5K in it now. About 25K total.

The original game plan was:
1) Contribute 2K per account per year, to get maximum state tax benefit.
2) I wasn't going to use Kid 1 and Kid 2 account for Kid 1 and Kid 2. Kid 1 and Kid 2 college tuition was to be paid for with CD's and bonds that are still in place.
3) The plan was to move Kid 1 and Kid 2 account money to Kid 3 account at the proper time (I don't know exactly when that was to be, but I have a few years to figure that out, I figured.)
4) So, Kid 3 was going to have about 80K (plus or minus gains or losses) by the time college rolled around.

You would laugh if you saw the asset allocation in these plans. I made a mess of it. It's all over the place. They made some decent money last year, but it needs to be cleaned up. I've been pondering switching 529 allocations for some time. Since about March of last year, actually. I can make one asset allocation change per year (yes, I know, unless I switch beneficiaries. Then I can change it at that time as well.)

Enter the Big "D". Divorce. Wife wants out. I'm pretty sure there's no changing her mind. So now I must deal with that. It's an emotional roller coaster, to say the least. I'm still in the house, and official proceedings have not yet begun. I'm assuming they will shortly.

But the divorce isn't my issue in this thread. The issue is the 529. Since I have a chance to clean things up, I'm looking for advice on asset allocation. I will no longer be able to contribute 2K per year. Heck, I may not be able to contribute anything going forward. So, I've got this 25K that I'm wondering what to do with.

Wife says to "shoot for the moon". All stocks. Hmmmm. Maybe. I was thinking something a bit more moderate, maybe a 20-25% allocation to Total Bond. But perhaps she's right. It's "only" $25,000, and that's not going to pay for much college in 10 years. If it gets slashed in half ... Kid 3 will hardly notice the difference, right? But, if it grows, say, 5% a year, that may actually pay for a full year of higher ed.

Comments?
HomerSector7G
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Re: 529 Strategy with reduced contributions going forward

Post by HomerSector7G »

My kids are also in the Ohio 529. I chose the Vanguard Moderate Age Based for 85%, Vanguard Total International for 15% with the intent of moving things 100% into age based when the kids are in 9th grade.

I think the strategy of maximizing gains in a 529 can be appealing, but the time to do that is early on. I would maybe look at the Aggressive Age Based option but being more aggressive with your kids relatively close to actually using the money is like taking it down to the casino. While its not $1mm it's still a meaningful sum when you compare it to in state tuition at OSU or Miami....

While I don't use target date funds for retirement I do like them in 529s as the timing is 'fixed.'

Good luck.
gte939h
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Re: 529 Strategy with reduced contributions going forward

Post by gte939h »

My vote would be to combine the 3 accounts now sice you will be doing that in the future anyway and adjust the AA with it as a whole. Since it is 10 years from when you would need the account I would use the age based option for the account after the transfer to ensure the age is based on your youngest child. You will have to decide which age based option to go with and how aggressive you are comfortable with, not many here will do that for you. Good luck.
Topic Author
RandyAdams1978
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Re: 529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

Yeah, the aggressiveness is obviously a personal decision. I'll also have to think about combining them now. I didn't really consider that, thanks. But I think I'll wait until the dust settles on the divorce, first. See where I land financially.

Thanks for the replies.
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JamesSFO
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Re: 529 Strategy with reduced contributions going forward

Post by JamesSFO »

If they really are all meant for Kid 3, I would combine them for Kid 3 and then act accordingly. But if you are really anticipating a divorce the divorce order will likely specify what happens to all of these things...
sunnyday
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Re: 529 Strategy with reduced contributions going forward

Post by sunnyday »

Does Ohio have a moderate or aggressive plan? I would just pick one of those and go with it if so. I'm a fan of keeping things simple.

Also, why do you plan on using CDs for the first two college educations? I think tapping then 529 right away would make more sense since you don't want money left over in the 529 after the kids graduate.
Topic Author
RandyAdams1978
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Re: 529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

I think, if we can remain amicable about it, the divorce could just say "leave it as it is" for now. We're trying to avoid actually taking this to trial. That being the case, it's my understanding that the separation agreement can say whatever we want it to say.

The trouble with combining for Kid 3 is ... I'm just not sure how much is going to be left for Kid 1 and Kid 2 now. I gotta think some about that.
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JamesSFO
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Re: 529 Strategy with reduced contributions going forward

Post by JamesSFO »

RandyAdams1978 wrote:I think, if we can remain amicable about it, the divorce could just say "leave it as it is" for now. We're trying to avoid actually taking this to trial. That being the case, it's my understanding that the separation agreement can say whatever we want it to say.

The trouble with combining for Kid 3 is ... I'm just not sure how much is going to be left for Kid 1 and Kid 2 now. I gotta think some about that.
If it is going to be an amicable divorce presumably the assets that you've mentally bookmarked for kid1/kid2 could be explicitly called out with specific $ set aside.
Topic Author
RandyAdams1978
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Re: 529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

If it is going to be an amicable divorce presumably the assets that you've mentally bookmarked for kid1/kid2 could be explicitly called out with specific $ set aside.
We could. But, I'm not wealthy enough to provide for two households. I may end up having to dip into those bonds and CDs just to keep above water. It's a big unknown, really. That, and things at work aren't going so swimmingly lately either. The shop I'm at is farming out everything they can. My job could be on the list. Another unknown.
Topic Author
RandyAdams1978
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Joined: Sun Dec 23, 2012 6:36 am

Re: 529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

Also, why do you plan on using CDs for the first two college educations? I think tapping then 529 right away would make more sense since you don't want money left over in the 529 after the kids graduate.
I set up three 529 accounts simply for the state tax benefit. At the time -- prior to divorce proceedings--- I was positive I would get NOTHING in the way of federal aid. So, I set up CD's for Child 1, and a series of bonds for Child 2. They come due roughly when tuition payments are due. There was never any intention on using the 529 money for Child 1 or Child 2. I was going to bump it all to Child 3 at the appropriate time. There wasn't going to be any left over 529 funds. If anything, there might have been some leftover CD or bond money that could have been also used for Child 3.
Laura
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Re: 529 Strategy with reduced contributions going forward

Post by Laura »

I vote for putting them in an aged based plan inside the 529 (assuming there is one). Sorry to hear about the divorce. I think you should divide what you already have in the two 529 plans into three so each child has more or less the same. You could leave the older one with a little more than the younger one since the younger one has more time on their side. I would aim to be as equal as possible by the time they hit college age.

You need to prioritize your own finances over college at this point. Someone will loan your kids money for school but they won't loan you money for retirement.

If you haven't done so already I strongly encourage a conversation with a divorce lawyer. There are laws about how assets need to be divided and understanding that quickly may give you a different idea on funding the 529. You need to quickly educate yourself.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
RandyAdams1978
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Joined: Sun Dec 23, 2012 6:36 am

Re: 529 Strategy with reduced contributions going forward

Post by RandyAdams1978 »

You need to quickly educate yourself.
Thanks, Laura. I've spoken with several lawyers already. Believe me, I'm getting an education.
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