Asset Allocation for 529 accounts

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Topic Author
Horatio
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Joined: Fri Dec 19, 2008 10:33 pm

Asset Allocation for 529 accounts

Post by Horatio »

Would appreciate some input on determining asset allocation within 529 accounts.

There are four children with expected college start dates of 2020 (two), 2024, and 2025.

These accounts are well funded (from grandparents) and are expected to cover a significant chunk of their educational costs. Right now they are ~70-75% stock. Not sure we understand how to rebalance as we get closer to anticipated draw dates.

Thank you!
Grt2bOutdoors
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Re: Asset Allocation for 529 accounts

Post by Grt2bOutdoors »

Horatio wrote:Would appreciate some input on determining asset allocation within 529 accounts.

There are four children with expected college start dates of 2020 (two), 2024, and 2025.

These accounts are well funded (from grandparents) and are expected to cover a significant chunk of their educational costs. Right now they are ~70-75% stock. Not sure we understand how to rebalance as we get closer to anticipated draw dates.

Thank you!
Are the 529 plan accounts allocated using an age-based plan or a set investment allocation whereby you need to make the rebalancing moves?
For someone who is 5.5 years away from beginning school - I'd tone down the stock allocation to 50% and the bond portion to 50%. What type of investment options are available in their 529 plan accounts?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Horatio
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Joined: Fri Dec 19, 2008 10:33 pm

Re: Asset Allocation for 529 accounts

Post by Horatio »

Thank you. It's this:
Grt2bOutdoors wrote: a set investment allocation whereby you need to make the rebalancing moves?
I'd rather reset them myself, pretty easy to do. I could mimic the age-based ratios but thought it worthy to think it through first.

It is the NY State plan:
https://www.nysaves.org/content/investments.html
jackholloway
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Re: Asset Allocation for 529 accounts

Post by jackholloway »

Horatio wrote:Thank you. It's this:
Grt2bOutdoors wrote: a set investment allocation whereby you need to make the rebalancing moves?
I'd rather reset them myself, pretty easy to do. I could mimic the age-based ratios but thought it worthy to think it through first.

It is the NY State plan:
https://www.nysaves.org/content/investments.html
Vanguard TBM has a seven year duration, and the stock market can take more than a decade to recover. With a ten year old, I recently moved 25/75 TSM/(TBM+Stable Value) as payment one is due in seven years, payment four in ten. Four years from now, I will move to bonds and safe assets, unless the markets look very different from today, or lots of scholarships turn up.
Leeraar
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Re: Asset Allocation for 529 accounts

Post by Leeraar »

My son is a sophomore. "His" 529 is in the 60/40 Lifestrategy Moderate fund, and I did not bother to change the allocation.

You should check who is the owner on the accounts. You? The kids? The grandparents? There are some quirks with gift taxes and with financial aid.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
RunningRad
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Re: Asset Allocation for 529 accounts

Post by RunningRad »

This is an under appreciated area of concerned that really depends on many factors including how large the account, what percent of the college expenses is expected to come from the 529 (versus other sources), expected returns, whether you continue add funds, etc.

Personally, I have my 10th grade son at about 25% equities and my 7th grade daughter at about 40% equities. I will reduce those allocations to 20% and 35% or so after Jan 1.
Few decisions in life motivated by greed ever have happy outcomes--Peter Bernstein, The 60/40 Solution
catchup
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Re: Asset Allocation for 529 accounts

Post by catchup »

For what it's worth I will be using swensens strategy:money needed in greater than ten years: 100% in eqity oriented investment portfolio (70/30 stock/bond ratio) in my case.
money needed in less than 2 years: 100% in cash,cd's or short term bonds.
money needed in 8 years: 75 % invested at 70/30, 25% in cash.
money needed in 6 years: 50% invested at 70/30, 50% in cash,etc.

gets a little complicated when thinking about multiple years of college and multiple kids, but that's how I'm doing it.

my first is close to 9 years out, so I'll start moving some into cash by spring, 12.5% of his first year's tuition, room and board. The rest will remain invested 70/30.
Topic Author
Horatio
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Joined: Fri Dec 19, 2008 10:33 pm

Re: Asset Allocation for 529 accounts

Post by Horatio »

RunningRad wrote:This is an under appreciated area of concerned that really depends on many factors including how large the account, what percent of the college expenses is expected to come from the 529 (versus other sources), expected returns, whether you continue add funds, etc.

Personally, I have my 10th grade son at about 25% equities and my 7th grade daughter at about 40% equities. I will reduce those allocations to 20% and 35% or so after Jan 1.
Thank you. This is what I'm asking: How are people deciding about these allocations?
For your 10th grade son, do you worry about the bond fund losing value as interest rates start to rise soon?
Topic Author
Horatio
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Joined: Fri Dec 19, 2008 10:33 pm

Re: Asset Allocation for 529 accounts

Post by Horatio »

Leeraar wrote: You should check who is the owner on the accounts. You? The kids? The grandparents? There are some quirks with gift taxes and with financial aid.
Yes, you are right. In our case the kids probably won't qualify for financial aid. These accounts are big enough to cover a lot of expenses, depending on how they perform between now and start of college. The gifting angle is all set for us but it did require some thought. There will be no further contributions as we (and grandparents) have put in as much as we are comfortable with for the 529 basket. Whatever this doesn't cover will come from taxable accounts. For reasons that many have discussed, we don't want the 529's to get too big and be at risk of overfunding.
Leeraar
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Re: Asset Allocation for 529 accounts

Post by Leeraar »

Horatio wrote:
Leeraar wrote: You should check who is the owner on the accounts. You? The kids? The grandparents? There are some quirks with gift taxes and with financial aid.
Yes, you are right. In our case the kids probably won't qualify for financial aid. These accounts are big enough to cover a lot of expenses, depending on how they perform between now and start of college. The gifting angle is all set for us but it did require some thought. There will be no further contributions as we (and grandparents) have put in as much as we are comfortable with for the 529 basket. Whatever this doesn't cover will come from taxable accounts. For reasons that many have discussed, we don't want the 529's to get too big and be at risk of overfunding.
The bummer is, to get any kind of merit-based aid, you still have to fill out the FAFSA forms.

My son got a couple of grand his freshman year, now we have decided screw it, we are not going to bother any more.

I have just transferred the beneficiary of a 529 from child 1 who decided not to go to college, to child 2, who is at college. Figured out a way to compensate child 1.

529s are way overrated, in my opinion.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Topic Author
Horatio
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Joined: Fri Dec 19, 2008 10:33 pm

Re: Asset Allocation for 529 accounts

Post by Horatio »

Leeraar wrote:
The bummer is, to get any kind of merit-based aid, you still have to fill out the FAFSA forms.

My son got a couple of grand his freshman year, now we have decided screw it, we are not going to bother any more.

I have just transferred the beneficiary of a 529 from child 1 who decided not to go to college, to child 2, who is at college. Figured out a way to compensate child 1.

529s are way overrated, in my opinion.

L.
Really? I was all smug thinking we could skip FAFSA.
Although the two 7th graders at this point are not academic superstars so might not be eligible for merit-based aid. ?
Leeraar
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Re: Asset Allocation for 529 accounts

Post by Leeraar »

If you are posting on Bogleheads, forget about need-based aid.

Merit-based aid requires FAFSA at many schools.

Unless you go with the National Merit Scholarship, which can garner very good offers for above-average students. My son got 4-year free ride plus offers from Auburn, Alabama and Nebraska. Tuition, room & board, plus a living stipend. (He was a National Merit Semi-Finalist, based on PSAT test scores.) He chose U of Michigan, which only gave us a couple of grand break in his first year. He loves it there, it is an hour away, and he is thriving. He is happy, we are happy, and we had saved the money to pay for U of M.

If I may crow a little bit, U of M was very direct about "every kid here was in the top 10% of students in their high school class." My son is now in the top 5% of his U of M class. It's a very remarkable thing.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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