How do Bogleheads invest their 529s?

jeanpierremelville · Post by **jeanpierremelville** » Thu May 12, 2016 9:28 pm

Hello Bogleheads,

I have a 4 year old and I am saving into a 529 for her future college expenses.

How do most of you invest the 529s? Do you go by the age appropriate options given by the 529 (For example, in our NY 529, there is an aggressive, moderate and conservative style and each one increases bond holdings after a certain age/ decreases stock holdings).

Or do you do something else like setting it a 60% equites 40% bonds and let it just run? I ask because the 529 age appropriate options put the investements into all or almost all bonds around age 16.

Thanks

jsong23

KlangFool · Post by **KlangFool** » Thu May 12, 2016 9:32 pm

OP,

I do not invest in 529. I do not think they are good options to finance college education. They are after tax contribution. Max up your Trad. 401K and Roth IRA before you consider 529.

KlangFool

powermega · Post by **powermega** » Thu May 12, 2016 9:38 pm

I like the age based portfolio myself. We have separate 529s for each child. CO 529.

TheGipper · Post by **TheGipper** » Thu May 12, 2016 9:42 pm

Assuming you.....
1) max out your retirement accounts
AND
2) youre a high income earner in a high tax bracket
AND
3) you can frontload your contributions

THEN
the tax free growth of the 529 may be worth giving up the flexibility of just investing in a taxable account

BUT
probably only if you keep your 529s heavily stock weighted (more so than a target date glide path)

OTHERWISE
you won't net that much in tax free growth anyways

One strategy would be to save about half the anticipated need in mostly equities in a 529, with the rest more conservatively in a taxable account. If the stock market is doing well when the child enters college, withdraw from 529. If the market is significantly down, use other funds for these years and wait for equities in 529 to recover. This strategy works better if their are younger siblings to transfer unused 529 $ to.

mcraepat9 · Post by **mcraepat9** » Thu May 12, 2016 10:49 pm

TheGipper wrote:One strategy would be to save about half the anticipated need in mostly equities in a 529, with the rest more conservatively in a taxable account. If the stock market is doing well when the child enters college, withdraw from 529. If the market is significantly down, use other funds for these years and wait for equities in 529 to recover. This strategy works better if their are younger siblings to transfer unused 529 $ to.

You should always withdraw funds used for qualified education expenses from your 529 in the year you incur them if you have any gain on those investments, even if equities are down generally. Just re-contribute those amounts as a new contribution to the 529 (or to another person's 529). Doing it that way (i) can give you another state tax deduction for that year if applicable, (ii) doesn't subject you to any "change in beneficiary" rules (since they are new contributions) and (iii) ensures your contribution basis is higher (so if you have to end up ever withdrawing for non-qualified purposes, the gains on those withdrawals would be lower).

bs010101 · Post by **bs010101** » Thu May 12, 2016 10:58 pm

100% total stock market, but I'm not looking for it to cover all the costs (current target is about half the cost of state school), so if someone starts college in a down year, I'll just take the money from somewhere else. The bond portion goes to mortgage payments with the goal of paying it off around when our oldest starts college, which would free up cash flow.

Ron Scott · Post by **Ron Scott** » Thu May 12, 2016 11:21 pm

Not sure these accounts are really set up for Beglehead type investors. I've just used them to run state tax deductions through. In and out...

gnujoe2001 · Post by **gnujoe2001** » Fri May 13, 2016 2:08 am

I use age based option (Aggressive Growth) for all our kids 529's, and fairly happy with performance so far. I'm usually not a fan of target date products, but college savings is a pretty defined timeline with expected pulls starting when the kid turns ~18. Our oldest will hit the first phase-change of the age based portfolio soon so I'll be watching to see how it switches over.

JonnyDVM · Post by **JonnyDVM** » Fri May 13, 2016 6:22 am

Most agressive option 100%. Our child is 8 months old though. So there's plenty of time to ride the ups and downs of the market.

livesoft · Post by **livesoft** » Fri May 13, 2016 6:27 am

My child is in college. The 529 money is invested in the Ohio plan in the Vanguard Income option which apparently has made about 0.9% return over the last few years. Big whoop.

I posted a thread about losing money in 529 plans:
viewtopic.php?t=107916

Two Headed Mule · Post by **Two Headed Mule** » Fri May 13, 2016 6:30 am

We anticipate being able to mostly cash-flow college expenses for our 3 and 6 year old, so we don't have a separate asset allocation for college expenses. It's just additional retirement space and so it follows that AA.

Mule

Big Dutch · Post by **Big Dutch** » Fri May 13, 2016 7:18 am

100% Global Equity Index fund. We'll probably stick with that until sometime in our child's teens and transition into a bond fund or equivalent.

GreatOdinsRaven · Post by **GreatOdinsRaven** » Fri May 13, 2016 7:30 am

We're using the Vanguard Nevada 529. I'm investing in the aggressive age-based option and my wife's plan invests in the moderate age-based option. After five years of investing the returns of each are close. Last time I checked (?Feb) their total balances were within 2% of each other (5.5 years of equal monthly contributions).

Edit: the first year contributions for each were lump-summed in December of the first partial year of life to maximize the gift tax exemption. Since then we've been DCA monthly.

msj16 · Post by **msj16** » Fri May 13, 2016 7:38 am

My child luckily has over 100,000 in growth after principle in the 529 plan. We aggressively front loaded money in when he was young. I based investing on using a college calculator, estimating 5% return from stocks. Now we are letting the stock allocation glide down, but it remains in an aggressive age-based allocation at Utah College savings.

warner25 · Post by **warner25** » Fri May 13, 2016 7:43 am

We use a 529 plan mostly to encourage relatives to give monetary gifts instead of more toys to our daughter. The NY plan partners with U-Gift to allow other people to make contributions and see that it's actually going to her account. I haven't been convinced that it's worth making our own contributions. If I received a state tax deduction, then I'd reconsider.

Grt2bOutdoors · Post by **Grt2bOutdoors** » Fri May 13, 2016 7:47 am

warner25 wrote:We use a 529 plan mostly to encourage relatives to give monetary gifts instead of more toys to our daughter. The NY plan partners with U-Gift to allow other people to make contributions and see that it's actually going to her account. I haven't been convinced that it's worth making our own contributions. If I received a state tax deduction, then I'd reconsider.

The NYS 529 plan offers a tax deduction for married couples filing jointly in NYS of $10,000, and $5,000 for single filers. Are you a NYS resident?

cheapindexer · Post by **cheapindexer** » Fri May 13, 2016 7:48 am

For our 7th grader 60/40 total stock to total bond

Four our kindergartener 100 percent total stock

For our third grader 60/40

Sound good ?

Grt2bOutdoors · Post by **Grt2bOutdoors** » Fri May 13, 2016 8:02 am

I use the Utah Moderate age based allocation plan - the downside thus far with this plan is it's heavy allocation to International has muted the returns when compared to the Aggressive age based allocation plan. I also hold a small taxable UTMA account to complement the 529 plan, if needed.

Dulocracy · Post by **Dulocracy** » Fri May 13, 2016 8:23 am

Please note that, as duration of this fund will be shorter than the average retirement fund, tilting or slicing and dicing may not be appropriate. This comes from someone with an aggressive small/value tilt.

Small/value tilts require time. For that reason, even though I slice and dice my retirement fund, I am really keeping it to a two fund for a 529 (which we are about to start for our newborn daughter). In this fund, we will have US funds as the primary. Over time, we will shift more to a bond heavy allocation.

kingsnake · Post by **kingsnake** » Fri May 13, 2016 8:38 am

Vanguard Aggressive Age Based for my 6yo and 4yo...put 50k total, in each over the last 4 years...thinking of not putting in anymore or quiting when oldest is 8...and then let it sit for 10 years. Agree contributing later doesn't offer much benefits. No state deduction for me either. could be better off just tax loss harvesting in taxable to pay for college.

mhc · Post by **mhc** » Fri May 13, 2016 9:14 am

I have stayed 100% TSM for all my kids. I probably have enough to cover 1/3 of their in-state college expenses. They are still 6-10 years out from college. I will probably just leave it at 100% TSM for the duration. Assuming I still am working when they attend college, I should be able to cash flow the whole thing if necessary.

Dazed&Confused · Post by **Dazed&Confused** » Fri May 13, 2016 9:29 am

powermega wrote:I like the age based portfolio myself. We have separate 529s for each child. CO 529.

Same here. Low fees and vanguard funds in the Utah 529. Used age based for simplicity.

remomnyc · Post by **remomnyc** » Fri May 13, 2016 10:10 am

It was 100% equities until last year, when we moved into the aggressive age-based portfolio, which has a glide path over time. We contribute $10k/yr which is the max NYS tax deduction for married filing jointly.

warner25 · Post by **warner25** » Fri May 13, 2016 12:21 pm

Grt2bOutdoors wrote:Are you a NYS resident?

No. I'm a resident of a state with no income tax, so I just chose the NY plan for its low-cost balanced index options.

PhysicianOnFIRE · Post by **PhysicianOnFIRE** » Fri May 13, 2016 12:25 pm

2 boys ages 5 and 7. I'm invested in a 100% equity portfolio with TIAA-CREF that contains domestic and international stocks.

I'll probably keep the aggressive allocation. I'd like the funds to have more than enough to cover their schooling, with some left over to grow for 25 to 35 years (I hope) and be used for grandkids someday.

abuss368 · Post by **abuss368** » Fri May 13, 2016 2:39 pm

Hi jsong23,

We invest in a simple but very effective Vanguard age based fund. This investment includes U.S. and International Stocks and Bonds. This week, the expense ratio was reduced yet again.

This has worked very well and we will stay the course.

Best.

GreatOdinsRaven · Post by **GreatOdinsRaven** » Fri May 13, 2016 2:45 pm

PhysicianOnFIRE wrote:I'll probably keep the aggressive allocation. I'd like the funds to have more than enough to cover their schooling, with some left over to grow for 25 to 35 years (I hope) and be used for grandkids someday.

That's my hope, too.

Checked with my wife who reminded me that for a while I owned Vanguard 500 index, mid cap index, small cap index and TISM in my own individual allocations before I decided to simplify. Probably didn't make much difference. She held her 529 account in moderate age-based the whole time. According to the Vanguard App on my phone my 529 account return since late 2010: 7.4%. Her return: 6.1%.

goodenyou · Post by **goodenyou** » Fri May 13, 2016 3:58 pm

Static Option Utah 529. 30/70 for 18 yo 50/50 for 16 yo and 70/30 for 13 yo. Will cash flow 18 yo entering college this fall and allow his portion to grow for the 16 yo and 13 yo. May be able to cash flow all 3. I am thinking about continuing to fund the 529 since graduate school is very likely. I don't want them to have any education debt like I did. Fortunately, I am able to do it. Live in a no state income tax state.

letsgobobby · Post by **letsgobobby** » Fri May 13, 2016 4:04 pm

We have 100% in stocks, a mix of TSM, TISM, EM, value, small. So pretty aggressive. Kids are 6 and 9. May glide down in 4-5 years... may not. The threat of taking a loss in the 529s is not existential, so we take more risk compared to our retirement accounts (which are 60/40). We have about $100,000 in untaxed gains in the 529s.

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How do Bogleheads invest their 529s?

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