529 Asset Allocation - is this valid thinking?

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pepperz
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529 Asset Allocation - is this valid thinking?

Postby pepperz » Thu Feb 16, 2017 9:37 pm

I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?

gk231
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Re: 529 Asset Allocation - is this valid thinking?

Postby gk231 » Thu Feb 16, 2017 9:59 pm

We are actually more conservative on asset allocation for the 529s we have set up for our kids, because the time horizon is shorter so we don't believe we can take as much risk. Our retirement portfolio is 80/20 (~30 year horizon) but our 529s are 60/40 (~16-22 year horizon). I would personally find that 100/0 allocation to be too much risk to stomach, but that is obviously a personal choice.

pepperz
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Re: 529 Asset Allocation - is this valid thinking?

Postby pepperz » Fri Feb 17, 2017 5:57 am

gk231 wrote:We are actually more conservative on asset allocation for the 529s we have set up for our kids, because the time horizon is shorter so we don't believe we can take as much risk.


That makes sense however in my situation (since we are not maxing out retirement yet) I feel we really won't be contributing much at all except for gifts from relatives.

With this attitude the balance cannot be much so I want to benefit from the highest upside.

Would love to hear from others. Thanks.

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tarheel
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Re: 529 Asset Allocation - is this valid thinking?

Postby tarheel » Fri Feb 17, 2017 6:21 am

We follow Robert T's suggested allocation model.....it's on one of his "sticky" posts......It goes 100% stocks from 1-3 yo and then moves into bonds little by little until college hits. 529 investing is in a weird medium term time frame - I think this fast glide path approach is one that makes sense.

rkhusky
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Re: 529 Asset Allocation - is this valid thinking?

Postby rkhusky » Fri Feb 17, 2017 7:46 am

pepperz wrote:With this attitude the balance cannot be much so I want to benefit from the highest upside.

While you may want the highest upside, the market may give you the downside.

I think it's okay to start off with 100/0 in the first few years of a 529, but, unless you have plenty of money otherwise, I would have a steep glide path. For example, 60/40 by age 10.

Interestingly, when I go to Vanguard's site to find the asset allocation for their 529 funds, I can't find it. I wonder why they are hiding that information?

shak_VF
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Re: 529 Asset Allocation - is this valid thinking?

Postby shak_VF » Fri Feb 17, 2017 8:46 am

at only age 10, still 7 to 8 yrs out, i personally think 60/40 is way too conservative - 80/20 until age 15 (I actually keep it at 100 until then) then pair back each year to 529 deposit account the senior year of high school. but I guess that's too aggressive for some.

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DaftInvestor
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Re: 529 Asset Allocation - is this valid thinking?

Postby DaftInvestor » Fri Feb 17, 2017 8:59 am

pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.


In many cases this is true but not all. If you are putting enough in your retirement accounts to fund you retirement and you also have a goal to pay for college expenses you don't need to max out your retirement accounts before contributing to a 529. You don't want to be in a position where you have to borrow for college expenses needlessly if you don't have to just because of a rule-of-thumb someone published.

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bengal22
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Re: 529 Asset Allocation - is this valid thinking?

Postby bengal22 » Fri Feb 17, 2017 9:05 am

I would imagine one approach would be to think of your AA 18 years before retirement. Based on that I would think a 60/40 stock to bond ratio would be ideal. You would hate to hit a low point right when the kid hits college age.

As a grandfather, I worry a little contributing to my grand kids 529 because I wonder what kind of AA my son is using. I know I am gifting and I should not worry but I wonder if my approach would be more beneficial. And of course I hate to ask because I want to be that Dad that does not give unsolicited advice.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 9:21 am

DaftInvestor wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.


In many cases this is true but not all. If you are putting enough in your retirement accounts to fund you retirement and you also have a goal to pay for college expenses you don't need to max out your retirement accounts before contributing to a 529. You don't want to be in a position where you have to borrow for college expenses needlessly if you don't have to just because of a rule-of-thumb someone published.


DaftInvestor,

<< If you are putting enough in your retirement accounts to fund you retirement >>

How does anyone know this? Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?

The simple answer is many of us do not know. So, we need to be prepared for the possibility that we may be forced into early retirement. We need to feed our family first before thinking of funding our kids' college education.

KlangFool

Grt2bOutdoors
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Re: 529 Asset Allocation - is this valid thinking?

Postby Grt2bOutdoors » Fri Feb 17, 2017 9:27 am

80/20 - first 6 years
Decide after those 6 years how you'd like to reset the allocation glide path, holding 100% equity is fine but only if you are comfortable with wide swings in value, both up and down. In 2008 - your $650 could have easily been worth $325 on March 9, 2009 (market low point), but from there $325 could have morphed to $1,000-$1,250 assuming you held on a 100% equity allocation throughout.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 9:29 am

pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?


pepperz,

1) I do not open 529 accounts for my kids. I kept their money in my taxable account. When they are old enough, I move the money into their own account.

2) When they worked at summer, I matched their earnings by putting my money into their Roth IRA.

3) I picked Lifestrategy Growth Fund for them.

This gives us the maximum flexibility.

A) If they go to college and I cannot fund them, they could use the money.

B) If they go to college and I can fund them, this is their money. Their emergency fund is ready to go.

C)If they choose not to go to college, they can use the money.

In my case, it turned up to be (B). So, they are on the path to be graduated in a few years with about 10K to 15K worth of investment in their Roth IRA and the taxable account.

KlangFool

keystone
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Re: 529 Asset Allocation - is this valid thinking?

Postby keystone » Fri Feb 17, 2017 9:31 am

The approach that I take with my 3 year old's 529 plan is that I will follow a 60/40 allocation for the first 10 years at which point I will sharply reduce the stock allocation around age 10 (maybe to 40/60) and continue to downshift the stocks until I'm around 0/100 by high school graduation.


I think the only scenario where I would go with a 100% stock allocation in a 529 plan is if I had more than enough money and I would simply let it ride for the future and hope to pass it on to the next generation.

Grt2bOutdoors
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Re: 529 Asset Allocation - is this valid thinking?

Postby Grt2bOutdoors » Fri Feb 17, 2017 9:32 am

KlangFool - the money was a gift to the kid, not to the parents. The money belongs in either an UTMA or a 529 plan for kid, not in the parent's account.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dspencer
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Re: 529 Asset Allocation - is this valid thinking?

Postby dspencer » Fri Feb 17, 2017 9:46 am

pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?


Our 529 for our 1 year old is 100% stocks (Vanguard S&P 500 index). Everyone's situation is different but the main reasons I think it is reasonable are:

1. 17 years is still a long time.
2. A college fund is more discretionary than retirement saving. Nobody is going to give me a low interest retirement loan.
3. The amount is small compared to retirement saving for us. If you lumped everything together it would barely change our overall AA.
4. The 500 index has the lowest fees of all options (not counting CDs).

As the time gets closer I will move to more conservative choices.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 10:55 am

I may have this completely wrong and ill-thought out, so take it for what is worth.

Going 100% in stocks "for 0-3 years" sounds flat out wrong to me, because it is essentially a short term time horizon that may result in a substantial loss at the outset of your investment planning. By way of example, if you had $100,000 to invest and said you wanted to be invested for 3 years at 100% equities, I'd say -- really? If that investment drops to $60,000 in year 3, what is your plan then? Just suck it up and move to bonds little by little? Seems more prudent to pick an allocation that you think makes sense "long term" and stick with it, with "long term" being 5-8 years.

If you have only $600 to invest, and are only going to be adding to that account in dribs and drabs, stay 100% invested in stocks and plan to do so for 6-8 years. If it grows to anything substantial you can diversify into bonds at any time along the way.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 11:08 am

KlangFool wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?


pepperz,

1) I do not open 529 accounts for my kids. I kept their money in my taxable account. When they are old enough, I move the money into their own account.

2) When they worked at summer, I matched their earnings by putting my money into their Roth IRA.

3) I picked Lifestrategy Growth Fund for them.

This gives us the maximum flexibility.

A) If they go to college and I cannot fund them, they could use the money.

B) If they go to college and I can fund them, this is their money. Their emergency fund is ready to go.

C)If they choose not to go to college, they can use the money.

In my case, it turned up to be (B). So, they are on the path to be graduated in a few years with about 10K to 15K worth of investment in their Roth IRA and the taxable account.

KlangFool
I am curious about this, because I am saving in 529 accounts for two kids. Is it correct that:
Option A -- you give up the tax sheltered savings that the 529 account would have provided (effectively making college more expensive)
Option B -- you give up the tax sheltered savings that the 529 account would have provided. (effectively making college more expensive)
Option C -- you save the penalty that would have been incurred for unqualified distributions. But, if you were in that boat, can the children use the money for their own kids?

Userdc
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Re: 529 Asset Allocation - is this valid thinking?

Postby Userdc » Fri Feb 17, 2017 11:12 am

Just speaking for myself, I have 529 accounts for my young children and have 100% in bonds.

I consider it part of overall asset allocation, so I don't think it's too important what my the allocation is in the 529 as long as I offset it elsewhere but I ended up 100% bonds for two reasons:

1. Quality of fund availabile in the 529 versus other accounts,

2. I also don't want to overaccumulate in the 529.
if equities quadruple over the next 20 years (like they did over the last 20), I'd rather have that happen in my 401k or IRA. This isn't a worry for a small 529, but my state provides a generous tax incentive for 529 contributions, so I contribute a sizable chunk every year to take advantage.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 11:21 am

David Scubadiver wrote:
KlangFool wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?


pepperz,

1) I do not open 529 accounts for my kids. I kept their money in my taxable account. When they are old enough, I move the money into their own account.

2) When they worked at summer, I matched their earnings by putting my money into their Roth IRA.

3) I picked Lifestrategy Growth Fund for them.

This gives us the maximum flexibility.

A) If they go to college and I cannot fund them, they could use the money.

B) If they go to college and I can fund them, this is their money. Their emergency fund is ready to go.

C)If they choose not to go to college, they can use the money.

In my case, it turned up to be (B). So, they are on the path to be graduated in a few years with about 10K to 15K worth of investment in their Roth IRA and the taxable account.

KlangFool
I am curious about this, because I am saving in 529 accounts for two kids. Is it correct that:
Option A -- you give up the tax sheltered savings that the 529 account would have provided (effectively making college more expensive)
Option B -- you give up the tax sheltered savings that the 529 account would have provided. (effectively making college more expensive)
Option C -- you save the penalty that would have been incurred for unqualified distributions. But, if you were in that boat, can the children use the money for their own kids?


David Scubadiver,

What amount are we talking about here?

At around 10K, the amount of tax paid is small or insignificant.

<<But, if you were in that boat, can the children use the money for their own kids?>>

My kids need to feed themselves first before worrying about their children. One step at a time. If my children cannot survive, why would they need to worry about paying for their kid's college?

KlangFool

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 11:24 am

I see your point. I am thinking about paying $400,000 for some private school 12 years from now, so the tax bite would be larger.

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DaftInvestor
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Re: 529 Asset Allocation - is this valid thinking?

Postby DaftInvestor » Fri Feb 17, 2017 11:32 am

David Scubadiver wrote:
KlangFool wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.

My wife and I are *not yet* maxing both our IRA's but relatives gifted us a total of $650 for our (currently) 3 month old baby's future over the holidays.

Today I opened a 529 account and funded it with that $650.

When presented with the investment options I ended up choosing the "Aggressive" allocation.

It is:

Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

This 100% stocks allocation does *not* follow the asset allocation we've decided for our own retirement accounts. (Our retirement accounts are 70% stocks 30% bonds for retirement)

Do you think this inconsistency is a problem?

My thinking is this 529 is "extra money" (rather than 'absolutely necessary money' like retirement) and because our ability to fund it is not guaranteed I want the highest potential upside for our child's education.

I suppose I'm saying I feel like it makes sense to to take a lot more risk with 529.

Thoughts? Or is it advisable to follow a similar AA to your retirement accounts?


pepperz,

1) I do not open 529 accounts for my kids. I kept their money in my taxable account. When they are old enough, I move the money into their own account.

2) When they worked at summer, I matched their earnings by putting my money into their Roth IRA.

3) I picked Lifestrategy Growth Fund for them.

This gives us the maximum flexibility.

A) If they go to college and I cannot fund them, they could use the money.

B) If they go to college and I can fund them, this is their money. Their emergency fund is ready to go.

C)If they choose not to go to college, they can use the money.

In my case, it turned up to be (B). So, they are on the path to be graduated in a few years with about 10K to 15K worth of investment in their Roth IRA and the taxable account.

KlangFool
I am curious about this, because I am saving in 529 accounts for two kids. Is it correct that:
Option A -- you give up the tax sheltered savings that the 529 account would have provided (effectively making college more expensive)
Option B -- you give up the tax sheltered savings that the 529 account would have provided. (effectively making college more expensive)
Option C -- you save the penalty that would have been incurred for unqualified distributions. But, if you were in that boat, can the children use the money for their own kids?


David - all good points. As someone who is enjoying paying for college with 20+ years of money that has grown tax-free - I don't understand why anyone that could afford to wouldn't want to take advantage of tax-free growth in a 529 account. If the kids choose NOT to go to college the money can be shifted to another child or grandchild - or worse case - you pay a 10% penalty on earnings only.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 11:34 am

David Scubadiver wrote:I see your point. I am thinking about paying $400,000 for some private school 12 years from now, so the tax bite would be larger.


David Scubadiver,

1) Good for you. You probably have 2 million or more in your retirement.

2) I would never pay that amount for an undergraduate degree. It simply does not meet my return on investment (ROI) target. Even if I have the money and I can afford the amount, I would spend 100+K and give the rest (300K) to my kid.

KlangFool

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DaftInvestor
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Re: 529 Asset Allocation - is this valid thinking?

Postby DaftInvestor » Fri Feb 17, 2017 11:39 am

KlangFool wrote:
DaftInvestor wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.


In many cases this is true but not all. If you are putting enough in your retirement accounts to fund you retirement and you also have a goal to pay for college expenses you don't need to max out your retirement accounts before contributing to a 529. You don't want to be in a position where you have to borrow for college expenses needlessly if you don't have to just because of a rule-of-thumb someone published.


DaftInvestor,

<< If you are putting enough in your retirement accounts to fund you retirement >>

How does anyone know this? Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?

The simple answer is many of us do not know. So, we need to be prepared for the possibility that we may be forced into early retirement. We need to feed our family first before thinking of funding our kids' college education.

KlangFool


To answer your questions:
>How does anyone know this?
Calculate retirement needs based upon expected expenses in retirement - there are many resources that walk you through this process.
>Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?
Everyone needs to make this judgement based upon industry, job skills and job security. In my case, I was reasonably sure I would not be out of work for a significant period of time BEFORE my children entered college and getting my children through college was a major financial goal for me thus the 529 plan was a no-brainer. I suppose if you have children much later in life you might be less sure you can hold full-time employment until they are in college.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 11:45 am

DaftInvestor wrote:
KlangFool wrote:
DaftInvestor wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.


In many cases this is true but not all. If you are putting enough in your retirement accounts to fund you retirement and you also have a goal to pay for college expenses you don't need to max out your retirement accounts before contributing to a 529. You don't want to be in a position where you have to borrow for college expenses needlessly if you don't have to just because of a rule-of-thumb someone published.


DaftInvestor,

<< If you are putting enough in your retirement accounts to fund you retirement >>

How does anyone know this? Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?

The simple answer is many of us do not know. So, we need to be prepared for the possibility that we may be forced into early retirement. We need to feed our family first before thinking of funding our kids' college education.

KlangFool


To answer your questions:
>How does anyone know this?
Calculate retirement needs based upon expected expenses in retirement - there are many resources that walk you through this process.
>Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?
Everyone needs to make this judgement based upon industry, job skills and job security. In my case, I was reasonably sure I would not be out of work for a significant period of time BEFORE my children entered college and getting my children through college was a major financial goal for me thus the 529 plan was a no-brainer. I suppose if you have children much later in life you might be less sure you can hold full-time employment until they are in college.


DaftInvestor,

For the completeness of the story, how does your plan work out?

KlangFool

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DaftInvestor
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Re: 529 Asset Allocation - is this valid thinking?

Postby DaftInvestor » Fri Feb 17, 2017 11:50 am

KlangFool wrote:
DaftInvestor wrote:
KlangFool wrote:
DaftInvestor wrote:
pepperz wrote:I understand one should not prioritize funding a 529 account before first maxing out their retirement accounts.


In many cases this is true but not all. If you are putting enough in your retirement accounts to fund you retirement and you also have a goal to pay for college expenses you don't need to max out your retirement accounts before contributing to a 529. You don't want to be in a position where you have to borrow for college expenses needlessly if you don't have to just because of a rule-of-thumb someone published.


DaftInvestor,

<< If you are putting enough in your retirement accounts to fund you retirement >>

How does anyone know this? Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?

The simple answer is many of us do not know. So, we need to be prepared for the possibility that we may be forced into early retirement. We need to feed our family first before thinking of funding our kids' college education.

KlangFool


To answer your questions:
>How does anyone know this?
Calculate retirement needs based upon expected expenses in retirement - there are many resources that walk you through this process.
>Are we assuming that the person will be fully employed until retirement age? If not, how many years of employment is safe?
Everyone needs to make this judgement based upon industry, job skills and job security. In my case, I was reasonably sure I would not be out of work for a significant period of time BEFORE my children entered college and getting my children through college was a major financial goal for me thus the 529 plan was a no-brainer. I suppose if you have children much later in life you might be less sure you can hold full-time employment until they are in college.


DaftInvestor,

For the completeness of the story, how does your plan work out?

KlangFool


My plan is working out great - kids are in college and will soon graduate without having to have taken out any loans (and I love the fact I can pay for college with tax-free growth and not even have anything to file with the IRS). My retirement savings continue to be on-track.

David Scubadiver
Posts: 242
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 11:53 am

KlangFool wrote:
David Scubadiver wrote:I see your point. I am thinking about paying $400,000 for some private school 12 years from now, so the tax bite would be larger.


David Scubadiver,

1) Good for you. You probably have 2 million or more in your retirement.

2) I would never pay that amount for an undergraduate degree. It simply does not meet my return on investment (ROI) target. Even if I have the money and I can afford the amount, I would spend 100+K and give the rest (300K) to my kid.

KlangFool

Oh, I did not mean to suggest that I am planning to pay $400,000 for some private school. Just thinking about it. As the children are not yet in first grade, I have a lot of time to adjust my thinking. But, even a public out of state school is "projecting" at 273,000 for my oldest, or $155,505 for a public instate school. Multiply that by two and we are talking about a lot of money. Who knows if they will go to college. If they don't, I will have a lot of money to go to the Kauai community college and spend my years enjoying hawaii and learning to cook or something.

rkhusky
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Re: 529 Asset Allocation - is this valid thinking?

Postby rkhusky » Fri Feb 17, 2017 11:55 am

shak_VF wrote:at only age 10, still 7 to 8 yrs out, i personally think 60/40 is way too conservative - 80/20 until age 15 (I actually keep it at 100 until then) then pair back each year to 529 deposit account the senior year of high school. but I guess that's too aggressive for some.

And if the market tanks 2 years before college? Or 4 years before? College outlays usually occur over 4 years, not the 20+ years of retirement, so there is less time to wait out a crash.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 12:09 pm

DaftInvestor wrote:
My plan is working out great - kids are in college and will soon graduate without having to have taken out any loans (and I love the fact I can pay for college with tax-free growth and not even have anything to file with the IRS). My retirement savings continue to be on-track.


DaftInvestor,

1) Good for you!

2) My plan worked out too. I am "cash flowing" my kids' college education now since my retirement is fully funded. I plan to retire in a few years after the kids graduated. This plan worked even though I was unemployed for more than a year a few times over the past 10+ years.

KlangFool

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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 12:13 pm

David Scubadiver wrote:Oh, I did not mean to suggest that I am planning to pay $400,000 for some private school. Just thinking about it. As the children are not yet in first grade, I have a lot of time to adjust my thinking. But, even a public out of state school is "projecting" at 273,000 for my oldest, or $155,505 for a public instate school. Multiply that by two and we are talking about a lot of money. Who knows if they will go to college. If they don't, I will have a lot of money to go to the Kauai community college and spend my years enjoying hawaii and learning to cook or something.



David Scubadiver,

And, you are willing to pay that amount about 10+ years later even if your net worth at that time is less than 500K? How about 300K? Or, 200K?

There are many that paid for their children's private college education. Then, they have to count on their children to support them in the retirement.

KlangFool
Last edited by KlangFool on Fri Feb 17, 2017 12:21 pm, edited 1 time in total.

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DaftInvestor
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Re: 529 Asset Allocation - is this valid thinking?

Postby DaftInvestor » Fri Feb 17, 2017 12:18 pm

KlangFool wrote:
DaftInvestor wrote:
My plan is working out great - kids are in college and will soon graduate without having to have taken out any loans (and I love the fact I can pay for college with tax-free growth and not even have anything to file with the IRS). My retirement savings continue to be on-track.


DaftInvestor,

1) Good for you!

2) My plan worked out too. I am "cash flowing" my kids' college education now since my retirement is fully funded. I plan to retire in a few years after the kids graduated. This plan worked even though I was unemployed for more than a year a few times over the past 10+ years.

KlangFool


The primary difference being the fact that I took advantage of 20 years of tax-free investing with the money I'm using to pay for college (versus if I used cash-flow I would have been putting more money in taxable accounts and paying more taxes). :)

I understand your point about not wanting to hold money in a 529 for an unforeseen circumstance with job loss - everyone has to make their own risk/reward financial decisions.

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camillus
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Re: 529 Asset Allocation - is this valid thinking?

Postby camillus » Fri Feb 17, 2017 1:10 pm

The problem with glide paths for 529 plans is that they are very steep, making the equity performance of the first few years critically important. Meanwhile, the SP and valuations are at an all time high...

I think the better play is thinking of the 529 as part of your total portfolio, which in reality, it is, and blurring your AA across accounts. Most everyone will pay for college from, in order from first to last:

1) 529 balance
2) normal cash flow
3) halted retirement contributions
4) taxable
5) student loans
6) HELOC
7) 401k loan
8) etc, Roth contributions

The point is, the 529 is part of your retirement portfolio.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 1:55 pm

KlangFool wrote:
David Scubadiver wrote:Oh, I did not mean to suggest that I am planning to pay $400,000 for some private school. Just thinking about it. As the children are not yet in first grade, I have a lot of time to adjust my thinking. But, even a public out of state school is "projecting" at 273,000 for my oldest, or $155,505 for a public instate school. Multiply that by two and we are talking about a lot of money. Who knows if they will go to college. If they don't, I will have a lot of money to go to the Kauai community college and spend my years enjoying hawaii and learning to cook or something.



David Scubadiver,

And, you are willing to pay that amount about 10+ years later even if your net worth at that time is less than 500K? How about 300K? Or, 200K?

There are many that paid for their children's private college education. Then, they have to count on their children to support them in the retirement.

KlangFool
Well, at ages 6 and 3, it is very difficult to know where I will be in 12-15 years when they are heading off to college. We are all on different paths for sure, and where we start definitely influences where we will wind up. If your question is, would I be willing to fund $300,000 in college expenses at a time when my net worth is $300,000 and would I be willing to essentially wipe out my entire net worth to send my kids to college, the answer to that question would be no, I do not think so. But if my net worth is 3,000,000 I likely will have a different view when it comes time to consider paying for college.

For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. As a result, for the moment, I am saving in 529 plans as if I am going to have to pay hundreds of thousands of dollars in 12-15 years. But, my job is not necessarily that secure and I may not be able to continue funding my 529 plans $21,600 per year come 2018. In which case, the $171,770 that I currently have invested will have to do. Should there come a time when the accounts are in danger of ballooning to more than I could possibly need, I can always go to TIPS or cash, and know that the college expense is taken care of.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 1:59 pm

camillus wrote:The problem with glide paths for 529 plans is that they are very steep, making the equity performance of the first few years critically important. Meanwhile, the SP and valuations are at an all time high...

I think the better play is thinking of the 529 as part of your total portfolio, which in reality, it is, and blurring your AA across accounts. Most everyone will pay for college from, in order from first to last:

1) 529 balance
2) normal cash flow
3) halted retirement contributions
4) taxable
5) student loans
6) HELOC
7) 401k loan
8) etc, Roth contributions

The point is, the 529 is part of your retirement portfolio.
I don' t know how most everyone will do anything, but I know what I will do. If college is not paid for 100% through the 529 plans, then the next place the money will come from will likely by the kids' Roth IRAs since those distributions are tax free. Maybe I will think differently if I want them to have those moneys continue to grow rather than be spent on college.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 2:49 pm

David Scubadiver wrote:Well, at ages 6 and 3, it is very difficult to know where I will be in 12-15 years when they are heading off to college. We are all on different paths for sure, and where we start definitely influences where we will wind up. If your question is, would I be willing to fund $300,000 in college expenses at a time when my net worth is $300,000 and would I be willing to essentially wipe out my entire net worth to send my kids to college, the answer to that question would be no, I do not think so. But if my net worth is 3,000,000 I likely will have a different view when it comes time to consider paying for college.

For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. As a result, for the moment, I am saving in 529 plans as if I am going to have to pay hundreds of thousands of dollars in 12-15 years. But, my job is not necessarily that secure and I may not be able to continue funding my 529 plans $21,600 per year come 2018. In which case, the $171,770 that I currently have invested will have to do. Should there come a time when the accounts are in danger of ballooning to more than I could possibly need, I can always go to TIPS or cash, and know that the college expense is taken care of.


David Scubadiver,

I assume that you have a ratio in mind and you are using it. If you have 172K in 529 now, your net worth should be at least a few times larger than that at this moment.

<<For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. >>

To each its own. As per my value system and ROI calculation, I will not be willing to spend the 300K in an undergraduate degree even if I have 3 million. I believe it is a waste of money. This does not necessary applies to anyone else.

KlangFool

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Re: 529 Asset Allocation - is this valid thinking?

Postby Jack FFR1846 » Fri Feb 17, 2017 3:08 pm

Pepperz,

I'm in the same boat as you are to some extent. I have only this year opened a 529 for my son who is in his 3rd year of college right now. It's getting funded with the 2% rewards of the Fidelity credit card, I'll throw $2k at it to get Massachusetts tax credit and the father in law likely will throw something in there.

Here's my answer to your original question on your fund choices: It's only $650. Who cares?

My own 529 is 100% S&P 500. If it drops 50%, it makes no real difference. If your $650 grows to $900 at college time and you have to pay a penalty and tax to remove it because you're not using it for college......again.....who cares?

Your funds are fine. Sleep well and have a great weekend.
Bogle: Smart Beta is stupid

np81
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Re: 529 Asset Allocation - is this valid thinking?

Postby np81 » Fri Feb 17, 2017 4:00 pm

We opened a Utah 529 plan years ago for our daughter, and I use a custom glide for the account:

Image

We only contribute $1200/year to the account because our intention is to only offset some of the costs of college. The rest can be paid for via student loans. I believe there's a user here who has something along the lines of 'your kids can get a loan for college, but you can't get loans for your retirement' as their signature.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 4:18 pm

np81 wrote:We opened a Utah 529 plan years ago for our daughter, and I use a custom glide for the account:

Image

We only contribute $1200/year to the account because our intention is to only offset some of the costs of college. The rest can be paid for via student loans. I believe there's a user here who has something along the lines of 'your kids can get a loan for college, but you can't get loans for your retirement' as their signature.
I agree that one should not sacrifice the ability to retire for the ability to keep one's children debt free. But, one could get a reverse mortgage and use that as a loan to retire. I am not recommending such a course of action, though such a debt may be more easily discharged in bankruptcy than the student loans, so between the two kinds of debt to fund college, maybe it is the better choice overall. I will leave that for more qualified people to crunch.

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Fri Feb 17, 2017 4:23 pm

KlangFool wrote:
David Scubadiver wrote:Well, at ages 6 and 3, it is very difficult to know where I will be in 12-15 years when they are heading off to college. We are all on different paths for sure, and where we start definitely influences where we will wind up. If your question is, would I be willing to fund $300,000 in college expenses at a time when my net worth is $300,000 and would I be willing to essentially wipe out my entire net worth to send my kids to college, the answer to that question would be no, I do not think so. But if my net worth is 3,000,000 I likely will have a different view when it comes time to consider paying for college.

For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. As a result, for the moment, I am saving in 529 plans as if I am going to have to pay hundreds of thousands of dollars in 12-15 years. But, my job is not necessarily that secure and I may not be able to continue funding my 529 plans $21,600 per year come 2018. In which case, the $171,770 that I currently have invested will have to do. Should there come a time when the accounts are in danger of ballooning to more than I could possibly need, I can always go to TIPS or cash, and know that the college expense is taken care of.


David Scubadiver,

I assume that you have a ratio in mind and you are using it. If you have 172K in 529 now, your net worth should be at least a few times larger than that at this moment.

<<For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. >>

To each its own. As per my value system and ROI calculation, I will not be willing to spend the 300K in an undergraduate degree even if I have 3 million. I believe it is a waste of money. This does not necessary applies to anyone else.

KlangFool
That assumption would be incorrect. The idea of using any sort of ratio to measure how much I ought to contribute to the 529 plan never occurred to me. I do pay attention to the fact that my 529 contributions are my largest post-tax monthly "expense", after the mortgage. And, I do note that it dwarfs the amount I save in the IRAs. If there were no limits on IRA contributions I would definitely be using that vehicle to soak up a lot of the 529 money.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Fri Feb 17, 2017 4:49 pm

David Scubadiver wrote:
KlangFool wrote:
David Scubadiver wrote:Well, at ages 6 and 3, it is very difficult to know where I will be in 12-15 years when they are heading off to college. We are all on different paths for sure, and where we start definitely influences where we will wind up. If your question is, would I be willing to fund $300,000 in college expenses at a time when my net worth is $300,000 and would I be willing to essentially wipe out my entire net worth to send my kids to college, the answer to that question would be no, I do not think so. But if my net worth is 3,000,000 I likely will have a different view when it comes time to consider paying for college.

For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. As a result, for the moment, I am saving in 529 plans as if I am going to have to pay hundreds of thousands of dollars in 12-15 years. But, my job is not necessarily that secure and I may not be able to continue funding my 529 plans $21,600 per year come 2018. In which case, the $171,770 that I currently have invested will have to do. Should there come a time when the accounts are in danger of ballooning to more than I could possibly need, I can always go to TIPS or cash, and know that the college expense is taken care of.


David Scubadiver,

I assume that you have a ratio in mind and you are using it. If you have 172K in 529 now, your net worth should be at least a few times larger than that at this moment.

<<For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years. >>

To each its own. As per my value system and ROI calculation, I will not be willing to spend the 300K in an undergraduate degree even if I have 3 million. I believe it is a waste of money. This does not necessary applies to anyone else.

KlangFool
That assumption would be incorrect. The idea of using any sort of ratio to measure how much I ought to contribute to the 529 plan never occurred to me. I do pay attention to the fact that my 529 contributions are my largest post-tax monthly "expense", after the mortgage. And, I do note that it dwarfs the amount I save in the IRAs. If there were no limits on IRA contributions I would definitely be using that vehicle to soak up a lot of the 529 money.


David Scubadiver,

As per your own post,

<<For my personal circumstances, I believe I will be closer to $3MM than to 300k in twelve years.>>

So, you have money elsewhere beyond your 529 that will drive your net worth to be 10 times larger than your 529 in 12 years. Or, most of the net worth is in your house?

KlangFool

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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Thu Feb 23, 2017 8:44 am

KlangFool wrote:So, you have money elsewhere beyond your 529 that will drive your net worth to be 10 times larger than your 529 in 12 years. Or, most of the net worth is in your house?

I am not sure I understand why my net should be 10x my 529 balance in 12 years and whether you mean 10x its current balance or 10x the balance 12 years from now.

But, my wife and I do have money in Roth IRAs, a 401(k), a 403(b), together with non-sheltered assets in a brokerage account and some I-Bonds with the treasury. If we do not need to raid those assets in the next 12 years, I believe we will have over 3 million at that time. May even have the mortgage paid off by then. My biggest uncertainty is the job. If I lose it, and take a 50% pay cut, I'm not sure how easily we could live within our new means without tapping savings.

This discussion is leading me to reconsider my 529 strategy. I may reduced to 10,000 per year split between the two of them and invest the rest in a non sheltered account.

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Thu Feb 23, 2017 9:43 am

David Scubadiver wrote:
KlangFool wrote:So, you have money elsewhere beyond your 529 that will drive your net worth to be 10 times larger than your 529 in 12 years. Or, most of the net worth is in your house?

I am not sure I understand why my net should be 10x my 529 balance in 12 years and whether you mean 10x its current balance or 10x the balance 12 years from now.

But, my wife and I do have money in Roth IRAs, a 401(k), a 403(b), together with non-sheltered assets in a brokerage account and some I-Bonds with the treasury. If we do not need to raid those assets in the next 12 years, I believe we will have over 3 million at that time. May even have the mortgage paid off by then. My biggest uncertainty is the job. If I lose it, and take a 50% pay cut, I'm not sure how easily we could live within our new means without tapping savings.

This discussion is leading me to reconsider my 529 strategy. I may reduced to 10,000 per year split between the two of them and invest the rest in a non sheltered account.


David Scubadiver,

You said that you are willing to spend 300K if you have 3 million at 12 years from now. So, you have a 10 to 1 ratio. So, if you have 172K in 529, you should have 1.72 million elsewhere. You should contribute to 529 every year in order to maintain this net worth to 529 ratios too. Or else, it would not be consistent if you are unemployed for any period over this 12 years.

KlangFool

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Thu Feb 23, 2017 10:47 am

KlangFool wrote:
David Scubadiver wrote:
KlangFool wrote:So, you have money elsewhere beyond your 529 that will drive your net worth to be 10 times larger than your 529 in 12 years. Or, most of the net worth is in your house?

I am not sure I understand why my net should be 10x my 529 balance in 12 years and whether you mean 10x its current balance or 10x the balance 12 years from now.

But, my wife and I do have money in Roth IRAs, a 401(k), a 403(b), together with non-sheltered assets in a brokerage account and some I-Bonds with the treasury. If we do not need to raid those assets in the next 12 years, I believe we will have over 3 million at that time. May even have the mortgage paid off by then. My biggest uncertainty is the job. If I lose it, and take a 50% pay cut, I'm not sure how easily we could live within our new means without tapping savings.

This discussion is leading me to reconsider my 529 strategy. I may reduced to 10,000 per year split between the two of them and invest the rest in a non sheltered account.


David Scubadiver,

You said that you are willing to spend 300K if you have 3 million at 12 years from now. So, you have a 10 to 1 ratio. So, if you have 172K in 529, you should have 1.72 million elsewhere. You should contribute to 529 every year in order to maintain this net worth to 529 ratios too. Or else, it would not be consistent if you are unemployed for any period over this 12 years.

KlangFool
Thank you for explaining.

If I am considering spending $y in 12 years, when I hope to have a net-worth of $10*y, then currently, you think I should only have .1*y locked up in the 529. That is certainly a logical approach. Frankly, I never really considered what I would be "willing" to spend on my children's college education. I just rant he numbers for a private school, saw what it might cost and decided to save for it figuring I could always adjust what I invest in the 529 plan as time goes on. I would rather "over invest" at the early stage and cut it back later as needed, because what I am "willing to pay" is not necessarily a function of my net worth -- current or future.

All of that being said, I think a good compromise solution will be for us to save for a public out of state school rather than a private school. The "app" I was using shows an average private school currently costs $45,370 and an out of state public school currently costs $35,370. The difference for the first child, assuming 5% college inflation drops from $351,080 to $273,776. For the younger son that drops from $406,535 to $316,931. So, still "need" $590,707 in 12-15 years to get them both fully funded. Depending on how they shape up as students, I may have to rejigger. Maybe I will lose some of the tax benefits if costs are greater or if they go to grad school and I feel like paying for that!

I think I will dial back and invest the maximum I can to get the state tax deduction -- 5,000 in each account and see how things shake out in the future. I'm comfortable with my current net worth to 529 account ratio to the extent I needed to be!

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Thu Feb 23, 2017 10:58 am

David Scubadiver wrote:Thank you for explaining.

If I am considering spending $y in 12 years, when I hope to have a net-worth of $10*y, then currently, you think I should only have .1*y locked up in the 529. That is certainly a logical approach. Frankly, I never really considered what I would be "willing" to spend on my children's college education. I just rant he numbers for a private school, saw what it might cost and decided to save for it figuring I could always adjust what I invest in the 529 plan as time goes on. I would rather "over invest" at the early stage and cut it back later as needed, because what I am "willing to pay" is not necessarily a function of my net worth -- current or future.

All of that being said, I think a good compromise solution will be for us to save for a public out of state school rather than a private school. The "app" I was using shows an average private school currently costs $45,370 and an out of state public school currently costs $35,370. The difference for the first child, assuming 5% college inflation drops from $351,080 to $273,776. For the younger son that drops from $406,535 to $316,931. So, still "need" $590,707 in 12-15 years to get them both fully funded. Depending on how they shape up as students, I may have to rejigger. Maybe I will lose some of the tax benefits if costs are greater or if they go to grad school and I feel like paying for that!

I think I will dial back and invest the maximum I can to get the state tax deduction -- 5,000 in each account and see how things shake out in the future. I'm comfortable with my current net worth to 529 account ratio to the extent I needed to be!


David Scubadiver,

<< The "app" I was using shows an average private school currently costs $45,370 and an out of state public school currently costs $35,370. The difference for the first child, assuming 5% college inflation drops from $351,080 to $273,776. For the younger son that drops from $406,535 to $316,931. So, still "need" $590,707 in 12-15 years to get them both fully funded. >>


No, it is not one lump sum of 591K. For your older son, it is 274K spread across 5 years:

Year 1) 17.5K
Year 2) 35K
Year 3) 35K
Year 4) 35K
Year 5) 17.5K

It is the same for your younger kid. With 172K in the 529, why do you need to save any more for the college? If you are fully employed when your kid goes to college, you have enough cash flow from your annual saving to pay for college. So, why do you need to save more for college?

KlangFool

Rupert
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Re: 529 Asset Allocation - is this valid thinking?

Postby Rupert » Thu Feb 23, 2017 11:10 am

rkhusky wrote:
pepperz wrote:With this attitude the balance cannot be much so I want to benefit from the highest upside.

While you may want the highest upside, the market may give you the downside.

I think it's okay to start off with 100/0 in the first few years of a 529, but, unless you have plenty of money otherwise, I would have a steep glide path. For example, 60/40 by age 10.

Interestingly, when I go to Vanguard's site to find the asset allocation for their 529 funds, I can't find it. I wonder why they are hiding that information?


Vanguard isn't hiding its 529 glidepath information. Simply google "Vanguard 529 Nevada glidepath" and you find the following: https://personal.vanguard.com/pdf/s346.pdf

David Scubadiver
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Re: 529 Asset Allocation - is this valid thinking?

Postby David Scubadiver » Thu Feb 23, 2017 1:39 pm

KlangFool wrote:
David Scubadiver wrote:Thank you for explaining.

If I am considering spending $y in 12 years, when I hope to have a net-worth of $10*y, then currently, you think I should only have .1*y locked up in the 529. That is certainly a logical approach. Frankly, I never really considered what I would be "willing" to spend on my children's college education. I just rant he numbers for a private school, saw what it might cost and decided to save for it figuring I could always adjust what I invest in the 529 plan as time goes on. I would rather "over invest" at the early stage and cut it back later as needed, because what I am "willing to pay" is not necessarily a function of my net worth -- current or future.

All of that being said, I think a good compromise solution will be for us to save for a public out of state school rather than a private school. The "app" I was using shows an average private school currently costs $45,370 and an out of state public school currently costs $35,370. The difference for the first child, assuming 5% college inflation drops from $351,080 to $273,776. For the younger son that drops from $406,535 to $316,931. So, still "need" $590,707 in 12-15 years to get them both fully funded. Depending on how they shape up as students, I may have to rejigger. Maybe I will lose some of the tax benefits if costs are greater or if they go to grad school and I feel like paying for that!

I think I will dial back and invest the maximum I can to get the state tax deduction -- 5,000 in each account and see how things shake out in the future. I'm comfortable with my current net worth to 529 account ratio to the extent I needed to be!


David Scubadiver,

<< The "app" I was using shows an average private school currently costs $45,370 and an out of state public school currently costs $35,370. The difference for the first child, assuming 5% college inflation drops from $351,080 to $273,776. For the younger son that drops from $406,535 to $316,931. So, still "need" $590,707 in 12-15 years to get them both fully funded. >>


No, it is not one lump sum of 591K. For your older son, it is 274K spread across 5 years:

Year 1) 17.5K
Year 2) 35K
Year 3) 35K
Year 4) 35K
Year 5) 17.5K

It is the same for your younger kid. With 172K in the 529, why do you need to save any more for the college? If you are fully employed when your kid goes to college, you have enough cash flow from your annual saving to pay for college. So, why do you need to save more for college?

KlangFool
Help me figure that out.

First, if $274,000 is the projected 4 year cost for my oldest, why are you spreading 140,000 over 5 years?
Second, I don't know if I will be fully employed or not when he goes to college. That was the reason I was saving up for it now. Also, if I pay for it out of savings, I am paying with after-tax dollars whereas if I pay for it out of 529 savings, I am paying some portion with tax-free gains.

According to the calculator if I split $170,000 between them today, I would save the projected cost of college if I add $154 a month with an annual return of 7% for the one, and $96 a month at 7% for the other. At 6% I'd need to invest $268 and $218 per month. Because I can invest more at this point, and don't know if I will be able to do so as easily in the future, to take advantage of the tax-free compounding, doesn't it make sense to throw in a couple hundred bucks more early on?

Grt2bOutdoors
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Location: New York

Re: 529 Asset Allocation - is this valid thinking?

Postby Grt2bOutdoors » Thu Feb 23, 2017 1:45 pm

Not KlangFool - but, if you throw a "couple more bucks" in each of the plans's you may "overfund" the accounts. Your funding does not take into account the potential for academic/merit scholarship, attending a lower cost school or potential future innovation which drives down the education inflation rate. Things you should consider in your planning, especially since you have a nice chunk of change already invested in the plans.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
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Re: 529 Asset Allocation - is this valid thinking?

Postby KlangFool » Thu Feb 23, 2017 2:34 pm

David Scubadiver wrote:Help me figure that out.

First, if $274,000 is the projected 4 year cost for my oldest, why are you spreading 140,000 over 5 years?
Second, I don't know if I will be fully employed or not when he goes to college. That was the reason I was saving up for it now. Also, if I pay for it out of savings, I am paying with after-tax dollars whereas if I pay for it out of 529 savings, I am paying some portion with tax-free gains.

According to the calculator if I split $170,000 between them today, I would save the projected cost of college if I add $154 a month with an annual return of 7% for the one, and $96 a month at 7% for the other. At 6% I'd need to invest $268 and $218 per month. Because I can invest more at this point, and don't know if I will be able to do so as easily in the future, to take advantage of the tax-free compounding, doesn't it make sense to throw in a couple hundred bucks more early on?


David Scubadiver,

You were showing the annual cost of $35,700 per year. Nevermind. If you assume 274K for 4 years, then, it is spread across 5 years of

Year 1) $34,250
Year 2) $68,500
Year 3) $68,500
Year 4) $68,500
Year 5) $34,250

<< Second, I don't know if I will be fully employed or not when he goes to college. That was the reason I was saving up for it now.>>

That is the whole point why you should not save for college now.

A) If you are employed when he goes to college, you have the cash flow to pay for the college.

B) If you are not employed when he goes to college, you do not want to pay more for his college. You need the money to pay for your retirement and living expenses.

Unless you are one of those people that say you are willing to sleep on the street and starve in order to pay for your kid's college, how does it makes sense to save more for college until and unless you are taken care of?

How does it make any sense for you to pay for your kid's college and ask them to support you in your retirement? They could borrow for the college education. You could not borrow for retirement. If you are unemployed when they go to college, you are retired.

KlangFool

rkhusky
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Re: 529 Asset Allocation - is this valid thinking?

Postby rkhusky » Thu Feb 23, 2017 2:46 pm

Rupert wrote:
rkhusky wrote:
pepperz wrote:With this attitude the balance cannot be much so I want to benefit from the highest upside.

While you may want the highest upside, the market may give you the downside.

I think it's okay to start off with 100/0 in the first few years of a 529, but, unless you have plenty of money otherwise, I would have a steep glide path. For example, 60/40 by age 10.

Interestingly, when I go to Vanguard's site to find the asset allocation for their 529 funds, I can't find it. I wonder why they are hiding that information?


Vanguard isn't hiding its 529 glidepath information. Simply google "Vanguard 529 Nevada glidepath" and you find the following: https://personal.vanguard.com/pdf/s346.pdf


I don't see the current asset allocation for the Growth Portfolio in that document. But even if it was, I would consider that hiding. I expected to be able to find the info here: https://personal.vanguard.com/us/funds/ ... IntExt=INT. For example, like this info for TR 2045: https://personal.vanguard.com/us/funds/ ... =INT#tab=2

Alto Astral
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Re: 529 Asset Allocation - is this valid thinking?

Postby Alto Astral » Thu Feb 23, 2017 2:58 pm

KlangFool wrote:
David Scubadiver wrote:Second, I don't know if I will be fully employed or not when he goes to college. That was the reason I was saving up for it now.


That is the whole point why you should not save for college now.

A) If you are employed when he goes to college, you have the cash flow to pay for the college.

B) If you are not employed when he goes to college, you do not want to pay more for his college. You need the money to pay for your retirement and living expenses.

Unless you are one of those people that say you are willing to sleep on the street and starve in order to pay for your kid's college, how does it makes sense to save more for college until and unless you are taken care of?

How does it make any sense for you to pay for your kid's college and ask them to support you in your retirement? They could borrow for the college education. You could not borrow for retirement. If you are unemployed when they go to college, you are retired.
KlangFool

For what its worth, I was ready to plunk $20K/year for both my kids 529k plans over the next 18 years. In a recent post, KlangFool opened my eyes to possible unemployment in the 40s and 50s. Not only have I decided to dial back, I've decided to adopt his strategy to cash-flow my kids education. In my mind, where there is a 50% chance of being unemployed at some point in the future, it does not make sense to bet 100% on 529s. His anecdotes and life lessons are valuable.

Yes, the tax free gains are tempting but it won't matter if you end up paying income tax + penalty if you dip into it when you need to feed the family if/when unemployed. 529s will always work out for some people, its statistics. However, that should not bias your thinking; I always think of it in relation to possible un/underemployment

WhiteMaxima
Posts: 251
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Re: 529 Asset Allocation - is this valid thinking?

Postby WhiteMaxima » Thu Feb 23, 2017 3:43 pm

If you can't fund 100% kids education, fund 50%. Then fund the rest 50% to your emergency fund.

Rupert
Posts: 2179
Joined: Fri Aug 17, 2012 12:01 pm

Re: 529 Asset Allocation - is this valid thinking?

Postby Rupert » Thu Feb 23, 2017 3:57 pm

rkhusky wrote:
Rupert wrote:
rkhusky wrote:
pepperz wrote:With this attitude the balance cannot be much so I want to benefit from the highest upside.

While you may want the highest upside, the market may give you the downside.

I think it's okay to start off with 100/0 in the first few years of a 529, but, unless you have plenty of money otherwise, I would have a steep glide path. For example, 60/40 by age 10.

Interestingly, when I go to Vanguard's site to find the asset allocation for their 529 funds, I can't find it. I wonder why they are hiding that information?


Vanguard isn't hiding its 529 glidepath information. Simply google "Vanguard 529 Nevada glidepath" and you find the following: https://personal.vanguard.com/pdf/s346.pdf


I don't see the current asset allocation for the Growth Portfolio in that document. But even if it was, I would consider that hiding. I expected to be able to find the info here: https://personal.vanguard.com/us/funds/ ... IntExt=INT. For example, like this info for TR 2045: https://personal.vanguard.com/us/funds/ ... =INT#tab=2


Isn't what you're looking for right there on the first page you linked? There's a link at the bottom of the page to the Program Statement. The Program Statement contains both the asset allocations and the glidepaths for the age-based options.


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