529 as part of AA question

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Longtimelurker
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529 as part of AA question

Post by Longtimelurker »

Hi all - my wife and I are expecting our first child in June. We will fund a 529 plan through Vanguard (Utah) since the 529 plan in NJ is terrible. Two questions:

- My wife will not have income this year. I assume this does not preclude her from providing a gift of $13k to the 529 plan, correct?
- I am strongly leaning towards ignoring the 529 in the context of my overall AA. Is anyone else doing this? Does anyone have an argument against doing this?

Thanks!
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.
Laura
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Re: 529 as part of AA question

Post by Laura »

I keep it separate from my retirement assets because the investing timeline is much shorter. You will find people here who do what I do and others who blend it into the total portfolio. However, remember that no one will loan you money for retirement although they will loan money to your child for school. Make sure you are 100% on the path toward a solid retirement and are fully funding those accounts before putting money aside for education. You can help the child pay back loans later or make larger contributions later once you have retirement locked in. I am not sure why you have no income this year but unless you are very wealthy I would be reluctant to lock money into for education when I had no income.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
amitb00
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Re: 529 as part of AA question

Post by amitb00 »

If you have money earmarked for a specific purpose, it's AA should align with timeline for the purpose. Also since his money will be gone before you retire, it should not be included in retirement AA.
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mhc
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Re: 529 as part of AA question

Post by mhc »

Your wife can give a gift without income.

No need to mix 529 into your retirement portfolio. The easiest way is to treat college money as a different bucket. With that said, my retirement portfolio and income influences my 529 allocation. I am 100% equities for my 529's. Worst case, I think I can pay for college from cash flow. Best case, equities will do really well and I won't have to cash flow much for college. It will probably be somewhere in between the two extremes.
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NorCalDad
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Re: 529 as part of AA question

Post by NorCalDad »

Congrats on your firstborn. I would also keep it separate from your AA. Different investing horizon and different purpose. I actually like mhc's idea of being aggressive and then relying on cash flow if need be.

I know many parents here make enough money that they've already filled all their retirement buckets and can afford 529 contributions, and you're probably in that boat. But I'd like to reiterate Laura's point about making sure retirement is maxed out first - 401ks, Roths and whatever else. It surprises me how many parents I know who feel compelled to open 529s because that's what we're told to do, but are unfamiliar with Roths and only contribute enough to their 401k to get the match.
dickenjb
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Re: 529 as part of AA question

Post by dickenjb »

Also please note the Utah plan is not "through Vanguard" but is through UESP and offers Vanguard funds in addition to DFA funds and other instruments. It is an excellent choice of plans however.
Xanadu
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Re: 529 as part of AA question

Post by Xanadu »

This is a poll I created some time ago.

http://www.bogleheads.org/forum/viewtop ... 1&t=102318

I ended up including as my overall portfolio. Reasons include:

1) easier to manage 1 portfolio vs 2
2) allows me to keep a lower expense ratio overall due to limited fund options in other retirement accounts
3) don't care if 529 is overfunded or underfunded, so risk is not a concern.

The primary advantage for us is the state tax write off, so I treat it as just another tax advantaged account when deciding how to allocate our overall portfolio among accounts. If the 529 ends up being underfunded, we will use cash flow, taxable accounts, or student loans to pay for kids college. If it is overfunded, we will save for grandchildrens education, spend it on ourselves, or use as inheritance, etc, etc, etc.
markcoop
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Re: 529 as part of AA question

Post by markcoop »

I do both. I generally view my portfolio as a whole and track to meet my target AA as a whole. If my AA indicates I should buy more SV, the important thing is I buy more SV, not the location of the SV. At times, this does allow for anmore efficient portfolio. Of course, this may cause my buckets to get a bit out of sync. To that end, I also break down my portfolio into buckets (college, retirement) and when possible try to buy what is needed in the bucket that needs it more. It may sound complicated, but these are just tables in a spreadsheet. I think this approach works if you have some flexibility paying for college.
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Re: 529 as part of AA question

Post by Jack FFR1846 »

Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
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markcoop
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Re: 529 as part of AA question

Post by markcoop »

Jack FFR1846 wrote:Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
To put that remark into perspective, money in a 529 plan owned by the parent is considered a parent asset and contributes to the expected family contribution by at most 5.6%. I personally max out my good retirement options but then have no problems contributing to a 529 plan.
Mark
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Munir
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Re: 529 as part of AA question

Post by Munir »

markcoop wrote:
Jack FFR1846 wrote:Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
To put that remark into perspective, money in a 529 plan owned by the parent is considered a parent asset and contributes to the expected family contribution by at most 5.6%. I personally max out my good retirement options but then have no problems contributing to a 529 plan.
What about a 529 owned by a grandparent? Does it affect financial aid eligibility in the same way as a parent-owned 529?
RNJ
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Re: 529 as part of AA question

Post by RNJ »

Separate bucket.
markcoop
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Re: 529 as part of AA question

Post by markcoop »

Munir wrote:
markcoop wrote:
Jack FFR1846 wrote:Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
To put that remark into perspective, money in a 529 plan owned by the parent is considered a parent asset and contributes to the expected family contribution by at most 5.6%. I personally max out my good retirement options but then have no problems contributing to a 529 plan.
What about a 529 owned by a grandparent? Does it affect financial aid eligibility in the same way as a parent-owned 529?
Looked it up on www.savingforcollege.com (http://www.savingforcollege.com/financi ... avings.php):
"If a parent owns the 529 account or ESA, up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included. "
Mark
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Munir
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Re: 529 as part of AA question

Post by Munir »

markcoop wrote:
Munir wrote:
markcoop wrote:
Jack FFR1846 wrote:Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
To put that remark into perspective, money in a 529 plan owned by the parent is considered a parent asset and contributes to the expected family contribution by at most 5.6%. I personally max out my good retirement options but then have no problems contributing to a 529 plan.
What about a 529 owned by a grandparent? Does it affect financial aid eligibility in the same way as a parent-owned 529?
Looked it up on http://www.savingforcollege.com (http://www.savingforcollege.com/financi ... avings.php):
"If a parent owns the 529 account or ESA, up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included. "
Thank you, Mark.
Last edited by Munir on Mon Feb 10, 2014 11:42 am, edited 1 time in total.
Topic Author
Longtimelurker
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Re: 529 as part of AA question

Post by Longtimelurker »

Laura wrote:I keep it separate from my retirement assets because the investing timeline is much shorter. You will find people here who do what I do and others who blend it into the total portfolio. However, remember that no one will loan you money for retirement although they will loan money to your child for school. Make sure you are 100% on the path toward a solid retirement and are fully funding those accounts before putting money aside for education. You can help the child pay back loans later or make larger contributions later once you have retirement locked in. I am not sure why you have no income this year but unless you are very wealthy I would be reluctant to lock money into for education when I had no income.

Laura
My wife will have no income this year. I make ~$300k per year. We are ahead on retirement. Thank you for your insights.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.
NYGiantsFan
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Re: 529 as part of AA question

Post by NYGiantsFan »

Looked it up on http://www.savingforcollege.com (http://www.savingforcollege.com/financi ... avings.php):
"If a parent owns the 529 account or ESA, up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included. "
I believe this information is incorrect if you are filling out CSS Profile form or Ivy League schools' financial profile forms. For them, assets owned by grandparent marked toward kid's education is considered 100% available as income (not asset) instead of 5.6% as parents.

Also, 5.6% may be mute if specific forms (for a given college) where they can ask how much money is saved toward specific child's 529 plan. I noticed that in U. Penn's form. Idea is that college wants to know entire value of 529 plan in order to decide any (or if) financial aid merits to the child.
freddie
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Re: 529 as part of AA question

Post by freddie »

That is true (for FASF but not a couple of the other FA options like css) but the other part of the equation is:
a) withdraws from the parents 529 don't count as income to the student
b) withdraws from the grandparents do.

Imagine you have 100k in either a grand parent or parents account and your going to a school that costs 50k and your eligible for 25k of financial aid without a 529 plan

a) parents: You will lose ~20k of financial aid (5k per year) so you only get 20k/yr of financial aid.
b) grandparents: if they pay 25k/yr (this is not optimal), the student will lose 37k in financial aid over those last 3 years. In reality you would tweak it (GP wouldn't pay for the first 2 years but only the last 2 or so) but you are still going to miss out on a ton of financial aid.

Now missing out on financial aid (i.e. do you really want a lot of loans for your kid) might not be the end of the world.....
markcoop wrote:
Munir wrote:
markcoop wrote:
Jack FFR1846 wrote:Look into the treatment of 529's by colleges for financial aid. If you have money in the 529, you could lose financial aid. If the money is instead in your retirement account, you might qualify for aid.
To put that remark into perspective, money in a 529 plan owned by the parent is considered a parent asset and contributes to the expected family contribution by at most 5.6%. I personally max out my good retirement options but then have no problems contributing to a 529 plan.
What about a 529 owned by a grandparent? Does it affect financial aid eligibility in the same way as a parent-owned 529?
Looked it up on http://www.savingforcollege.com (http://www.savingforcollege.com/financi ... avings.php):
"If a parent owns the 529 account or ESA, up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included. "
Spirit Rider
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Re: 529 as part of AA question

Post by Spirit Rider »

It is best to use non parent/student 529 (grandparent or other) following your final year FAFSA/CSS Profile. If you are now completing for 2014/2015 school year, you can use grandparents 529 to pay all qualified expenses for 2014/2015. You normally can not pay off student loans with 529 funds, but you can pay off loans in the same year as the qualified expenses were incurred.
gte939h
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Re: 529 as part of AA question

Post by gte939h »

I do not include my 529 account when it comes to AA, only my personal retirement accounts.
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LH
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Re: 529 as part of AA question

Post by LH »

I keep it separate from my retirement.

If 529 expectantly is not going to be there when I retire....... Its not part of retirement.

also, if it needs to be used in 2021, I want to get conservative with that money near 2021, versus 2035 when I will be 65 God willing.
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