529/son got accepted to medical school whahoooo!

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cestan
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529/son got accepted to medical school whahoooo!

Post by cestan » Thu Apr 13, 2017 12:54 pm

Son just got accepted to medical shool this week. Due to an incredible investing education learned on this board, I have enough money in a 529 to pay for all four years. He earned his way through college with scholarships and working. It is currently 90 percent in stocks and 10 percent bonds. Should i just move it all to a money market acct in the 529 or a bank fund in the 529 or some other combination? It is in the Nebraska 529. It will be drawn down to zero over the next four years. Never thought the wife and I would say "our son the doctor".

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White Coat Investor
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Re: 529/son got accepted to medical school whahoooo!

Post by White Coat Investor » Thu Apr 13, 2017 1:00 pm

Hope he likes it as much as you like having a son as a doctor.

I would argue that having enough in a 529 to pay for med school is a result of you being a high earner yourself. Very few people can invest their way into a $250K+ 529.

At any rate, it's great for both of you that you're in this situation.

You don't need all that money in cash on day 1, but how conservative you go depends on your comfort with a big market drop just before the money is needed. Personally, I'd probably continue to invest it aggressively the whole way through school, but few people invest their 529s as aggressively as I do.

Why not put 1 year in cash, another year in bonds, and have the last two years in stocks. Then in a year, move the bonds into cash and the another year's worth of stocks into bonds (assuming no huge stock market meltdown.) Then a year later, do it again. Seems like a reasonable way to split the difference between avoiding losses and allowing the money to continue to work for you.

But it wouldn't be wrong to just put it all in cash right now. Lots of people would argue that when you've won the game you should quit playing.
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bigred77
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Re: 529/son got accepted to medical school whahoooo!

Post by bigred77 » Thu Apr 13, 2017 1:22 pm

Do you have any other children with potential higher education costs coming down the pipeline? Any notions about funding 529 plan for current/future grand kids?

If answering no to both questions above then i would get out of equities entirely. If yes to one of the above I would still de-risk the 529 down to at least 50/50 or thereabouts.

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TomatoTomahto
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Re: 529/son got accepted to medical school whahoooo!

Post by TomatoTomahto » Thu Apr 13, 2017 1:31 pm

Congratulations to you and your son. He will be in a very small group of kids (well, he's still a kid, I guess) who graduate medical school without a mountain of debt. Whahooo is right!

cestan
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Re: 529/son got accepted to medical school whahoooo!

Post by cestan » Thu Apr 13, 2017 1:56 pm

no other kids coming down the educational pipeline and nothing to leave to gradchildren..

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Re: 529/son got accepted to medical school whahoooo!

Post by itstoomuch » Thu Apr 13, 2017 2:18 pm

In early 2001, we had enough in UGMA for a private tuition, undergrad education. Kept the balanced allocation :mrgreen:
In early 2007, we could do early retirement in 2009 when the first one reached 62. Kept the balanced allocation. :mrgreen:

By fall of 2002, as Only was boarding the plane, the UGMA had enough to fund tuition freshman year and 1st semester R&B :oops:
By fall of 2008, our retirement funds was down by 40%… :oops:

I am a little more gunshy at our age and experience :annoyed
YMMV. :beer
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Re: 529/son got accepted to medical school whahoooo!

Post by runner3081 » Thu Apr 13, 2017 4:09 pm

Congrats... That is great news. The fun will begin soon with matching, residency, etc.

I am not a doctor, but have been in healthcare management for quite some time - based on that, some unsolicited advice... pick a high-paying specialty. Neurosurgery, Anesthesia, Urology, etc. Also, make sure to do a fellowship. Might as well without the burden of student loans.

Stay away from Fam Med, Rheum, etc.

KATNYC
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Re: 529/son got accepted to medical school whahoooo!

Post by KATNYC » Thu Apr 13, 2017 4:10 pm

Congratulations!!! No kids, yet, but I'd probably cash out now for fear of a market turn down. The market is down today due to a bomb being dropped on ISIS. You won :D Take your bag of money and go :beer

kmurp
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Re: 529/son got accepted to medical school whahoooo!

Post by kmurp » Thu Apr 13, 2017 4:54 pm

Put it in bonds or an age based fund if they have it.

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Re: 529/son got accepted to medical school whahoooo!

Post by Grt2bOutdoors » Thu Apr 13, 2017 5:16 pm

KATNYC wrote:Congratulations!!! No kids, yet, but I'd probably cash out now for fear of a market turn down. The market is down today due to a bomb being dropped on ISIS. You won :D Take your bag of money and go :beer
Nonsense, the market is down today because more sellers than buyers - supply and demand.
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triceratop
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Re: 529/son got accepted to medical school whahoooo!

Post by triceratop » Thu Apr 13, 2017 5:17 pm

Grt2bOutdoors wrote:
KATNYC wrote:Congratulations!!! No kids, yet, but I'd probably cash out now for fear of a market turn down. The market is down today due to a bomb being dropped on ISIS. You won :D Take your bag of money and go :beer
Nonsense, the market is down today because more sellers than buyers - supply and demand.
Strange, I thought a 'trade' implied for every share sold a share was bought? :wink:
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Re: 529/son got accepted to medical school whahoooo!

Post by Christine_NM » Thu Apr 13, 2017 5:24 pm

Cash for anything less than 5 years. You know that, right?

You want more stocks, add to your taxable account.
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ram
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Re: 529/son got accepted to medical school whahoooo!

Post by ram » Thu Apr 13, 2017 6:49 pm

I am a physician with a daughter in med school. I have always kept all 529 monies in stocks and will continue to do so. Any deficits from market downturns will be funded by current income.

Consider the following 2 situations:
A) The 529 balance is 250 K and retirement fund balance is 2.5 million with current (all inclusive) annual retirement savings >100K/yr. Under this situation you can consider keeping all 529 balance in stocks. If the market goes up everything is fine. If it goes down you sell the equities in 529 at a loss and buy equivalent equities in your 401K. Thus you are not locking in any losses. As the retirement savings are substantially larger than the 529 balance this will not significantly change the asset allocation ratio between stocks and bonds. This is obviously the high risk high return scenario. Last year I transferred a years worth of living expenses to my daughter and the balance is higher than before now due to market increases.

B) Your 529 balance is 250 K and retirement balance is 250 K. (deliberate exaggerated mismatch here). Under these circumstances it would not be prudent to take risk and I would convert 100% to cash.

- With numbers between these two one can go partially to cash.

- Congrats and best luck to your son. I would not recommend going to a specialty simply for higher remuneration. However if he likes two specialties equally then picking the higher paying one obviously makes more financial sense. All physicians (irrespective of specialty or lack thereof) eventually end up in the top 10% of income for the general population and you better like what you will train for for 10 yrs and practice another 25 yrs.
Ram

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Re: 529/son got accepted to medical school whahoooo!

Post by Grt2bOutdoors » Thu Apr 13, 2017 7:17 pm

triceratop wrote:
Grt2bOutdoors wrote:
KATNYC wrote:Congratulations!!! No kids, yet, but I'd probably cash out now for fear of a market turn down. The market is down today due to a bomb being dropped on ISIS. You won :D Take your bag of money and go :beer
Nonsense, the market is down today because more sellers than buyers - supply and demand.
Strange, I thought a 'trade' implied for every share sold a share was bought? :wink:
True, but at what price? If you are selling and you really need the money, you are a "price-taker". :wink:
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Re: 529/son got accepted to medical school whahoooo!

Post by bondsr4me » Thu Apr 13, 2017 7:33 pm

triceratop wrote:
Grt2bOutdoors wrote:
KATNYC wrote:Congratulations!!! No kids, yet, but I'd probably cash out now for fear of a market turn down. The market is down today due to a bomb being dropped on ISIS. You won :D Take your bag of money and go :beer
Nonsense, the market is down today because more sellers than buyers - supply and demand.
You nailed...so may don't understand that reality.

Strange, I thought a 'trade' implied for every share sold a share was bought? :wink:
Yes, for every seller there is a buyer, but.....when bids dry up and no one is willing to buy at sellers prices, the sellers lower their prices until buyers step in to buy. If you have ever watched level 2 quotes, you would see this.

To OP, congratulations! You must be very proud of your son.

My own doctor (the best IMHO) is the son of a doctor and a grandson of a doctor and now his son is a doctor.

I wish you son Good Luck!

Don

peter007
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Re: 529/son got accepted to medical school whahoooo!

Post by peter007 » Thu Apr 13, 2017 7:51 pm

Congratulations,wish your son giid luck...
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Last edited by peter007 on Mon Apr 24, 2017 4:59 pm, edited 1 time in total.

mt
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Re: 529/son got accepted to medical school whahoooo!

Post by mt » Thu Apr 13, 2017 9:04 pm

Congrats.

I hope he appreciates what you have done for him. The last several docs we have hired into my group have had $300-350K in debt.

sat24
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Re: 529/son got accepted to medical school whahoooo!

Post by sat24 » Thu Apr 13, 2017 9:18 pm

cestan wrote:Son just got accepted to medical shool this week. Due to an incredible investing education learned on this board, I have enough money in a 529 to pay for all four years. He earned his way through college with scholarships and working. It is currently 90 percent in stocks and 10 percent bonds. Should i just move it all to a money market acct in the 529 or a bank fund in the 529 or some other combination? It is in the Nebraska 529. It will be drawn down to zero over the next four years. Never thought the wife and I would say "our son the doctor".
Congratulations!!! :)

psychoslowmatic
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Re: 529/son got accepted to medical school whahoooo!

Post by psychoslowmatic » Thu Apr 13, 2017 9:32 pm

OP Congratulations on your son's acceptance!

All - I've never seen anyone on this board advocate that reserves needed in 1-4 years be kept in stocks. Why does putting it in a 529 make it different? I would be advising something like 30/70 now and drop the stocks 10% per year until 100% bonds for the 4th year.

And what utility do 529 funds have after the son graduates medical school? Grandkids? Other children I missed mention of?

Not criticizing, just trying to understand. I don't have children so I haven't looked at 529s and am wondering what I missed...

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Re: 529/son got accepted to medical school whahoooo!

Post by WallStreetPhysician » Thu Apr 13, 2017 10:01 pm

cestan wrote:Son just got accepted to medical shool this week. Due to an incredible investing education learned on this board, I have enough money in a 529 to pay for all four years. He earned his way through college with scholarships and working. It is currently 90 percent in stocks and 10 percent bonds. Should i just move it all to a money market acct in the 529 or a bank fund in the 529 or some other combination? It is in the Nebraska 529. It will be drawn down to zero over the next four years. Never thought the wife and I would say "our son the doctor".
Congratulations, your son must be very excited/relieved. April is pretty late in the cycle to get the first acceptance (if i recall the first acceptances begin on September 15th and waitlist acceptances begin May 15).

If you have enough money in the 529 to pay for all four years, than I'd just leave it in cash and draw it down. You've won the game and it doesn't sound like there would be any potential beneficiaries for any leftover 529 money. Remember that your son's medical school tuition will rise between now and his 4th year of medical school (tuition at my medical school went up over 40% between my application year and my 4th year of medical school).

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Re: 529/son got accepted to medical school whahoooo!

Post by lazylarry » Thu Apr 13, 2017 10:42 pm

psychoslowmatic wrote:OP Congratulations on your son's acceptance!

All - I've never seen anyone on this board advocate that reserves needed in 1-4 years be kept in stocks. Why does putting it in a 529 make it different? I would be advising something like 30/70 now and drop the stocks 10% per year until 100% bonds for the 4th year.

And what utility do 529 funds have after the son graduates medical school? Grandkids? Other children I missed mention of?

Not criticizing, just trying to understand. I don't have children so I haven't looked at 529s and am wondering what I missed...
+1
Congrats to your son.
I'd agree with psychoslowmatic- I would really not recommend 100% stocks. At least 50% fixed income as per WCI. I think some above posters were suggesting buying in 401k whatever stocks were lost in 529. That's fine if you're doing long term rebalancing in retirement accounts - but you are not in this case and the 529 is actively withdrawing. I'd say that's definitely aggressive. Otherwise, should you just invest in the wildest hedgefund out there and if it goes down to $1, then would you just buy $1 in that hedgefund in your 401k? No.
-As other posters have said, the cost definitely increases - 40% seems like more than I'd expect, but you might want to look at his medical school. I think you could do something like what psychoslowmatic suggests or add in a component of CDs as desired if you'd don't need the risk. Also if you have excess in your 529, it is not helpful as you'll be subject to regular taxes and penalty, unless you're keeping it for his kids.
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Re: 529/son got accepted to medical school whahoooo!

Post by pierremonfrere » Thu Apr 13, 2017 11:06 pm

runner3081 wrote:Congrats... That is great news. The fun will begin soon with matching, residency, etc.

I am not a doctor, but have been in healthcare management for quite some time - based on that, some unsolicited advice... pick a high-paying specialty. Neurosurgery, Anesthesia, Urology, etc. Also, make sure to do a fellowship. Might as well without the burden of student loans.

Stay away from Fam Med, Rheum, etc.
I will respectfully disagree. Without the burden of student loans to pay off, he can do whatever he wants that makes him the most happy. Graduating debt free will give him the luxury of choice and the ability to be financially independent sooner rather than later.

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Re: 529/son got accepted to medical school whahoooo!

Post by Finance-MD » Thu Apr 13, 2017 11:12 pm

Congratulations to your son and yourself.

Just throwing a wrench into this discussion as food for thought. I may have some misunderstandings about rules and regulations of 529s but...

Does your son have any idea if he may want to stay in academia and work for a non-profit?

If so, he could take the Med school loans out and take advantage of the PSLF ' doctor loophole' and only pay a fraction of the actual school amount assuming the government does not change its policy with PSLF. If he goes through residency and fellowship over ~ 6 years, he can get away with only paying about 1/3 of his actual Med school loan cost. If he only does a 3 year residency, it's a bit more of a wash given potentially higher interest rates with public loans but still could be a substantial discount in the long run, perhaps 20-30%.

It'd be great if he could take the loans and get PSLF if he stays non profit; and if not, you could pay off the loans with a 529. But unfortunately 529 earnings can't pay for loans. That would be the best of both worlds. Who knew planning ahead could get in the way of a great discount on school.

For me... if I were your son, I'd take out the loans. I'd tap into the 529 principal but not earnings once I got into my repayment period. If i stayed non profit I'd take PSLF and leave the remaining 529 for siblings or hold for my children down the road :). If I didn't do PSLF, I'd consider taking off the principal to pay down the loan for whatever amount I can, refinance the remainder at a low rate and take care of that new residual loan myself, and pass on the remainder 529 to a family member or hold for my own kids. The 529 is like a Roth IRA... tax protected :). Why unshelter what you can readily pay off with cash flow... unless you are super debt averse. As long as the refinanced loan rate is low, this can be a very good long term strategy, especially if you want to be able to pass on a good tax free estate and also Want to provide a college endowment for all your kids/grandkids... imagine what $250k invested for another 25-35 years could pay for a number of grandkids to go to school rather than just one doctor's Med school... or even could grow enough to subsidize college educations in perpetuity in generations to come...just food for thought.
Last edited by Finance-MD on Thu Apr 13, 2017 11:22 pm, edited 1 time in total.

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Re: 529/son got accepted to medical school whahoooo!

Post by nrb1129 » Thu Apr 13, 2017 11:21 pm

[OT comment removed by moderator prudent]

As a resident graduating with 300k debt I cannot even imagine the feeling of getting out with zero debt.

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Re: 529/son got accepted to medical school whahoooo!

Post by Finance-MD » Thu Apr 13, 2017 11:27 pm

in response to the comment above (now deleted), I had not suggested to spend the 529 on shopping. i suggested keeping it invested. This would also allow flexibility to maintain a more aggressive asset allocation since the funds wouldn't all be needed all at once.
The net worth of the individual may be no worse off having a loan and an investment but with more liquidity and flexibility regarding funds.

My spouse and I started with $560k in debt. I know the feeling.
I would love to shovel $250k more into our Roth IRA's, but we can't.

--------------------
UPDATED POST BELOW

Even without PSLF, most physicians should be able to pay off their debt within ~3 years after residency if they desire, potentially faster if they earn/save enough. If they didn't tap into the 529, they would be (1) out of debt and (2) have 529's funds to fund college for multiple/all of
his/her children.

Example (no PSLF used)
2 people (one cashes out and spends the 529, other keeps it invested).
assumptions:
neither invests any money during training, just 'gets by.'
4 yrs med school
6 years of residency/fellowship
10 years total training.
No payments are made on the loans during training (unrealistic but simpler)
Interests compounds annually
Student loan rate at 5.3% throughout training
No changes in cost of tuition/fees, total is $250k for 4 yrs
All investments are 60/40 and earn CAGR of 8.85% nominal (based on past 30 years TSM, TBM AA).
Taxable investments earn CAGR of 7.85% (1% less)
Both start paying down debt or investing $150k per year after training.

After year 10
Person A (cashed out 529): Debt = $0. 529 value = $0. Net worth = $0.
Person B (invested 529): Debt = $424k 529 value = $538k. Net worth = $114k

Person A puts $70k in a 529 in his own name during year 11 along with $80k in taxable; years 12 and 13, he puts in $150k into taxable
Person B starts paying down loans now ($150k per year) in years 11, 12, 13

After year 13
Person A (cashed out 529): Debt = $0. 529 value = $83k. Taxable investment = $405k, Net worth = $488k.
Person B (invested 529): Debt = $0. 529 value = $753k. Taxable investment = $0k, Net worth = $753k.

At this point if they do no further investing and just let their money ride....

After year 30, both have a child going to college
Person A (cashed out 529): Debt = $0. 529 value = $350k. Taxable investment = $1.46 MM, Net worth = $1.8 M.
Person B (invested 529): Debt = $0. 529 value = $3.2M. Taxable investment = $0k Net worth = $3.2 M.

This is all just theoretical and assumes that you can continue letting your 529 grow for perpetuity without requiring distributions, etc. (i honestly don't know the laws about how 'big' a 529 can get).

At this point, with 3.2M in 529 money, using 3% safe withdrawal rate, $96k could be pulled out per year for college for perpetuity... that's a pretty good endowment

Other notes, yes, person A would have maxed out 401k/403b/457/IRA instead of just putting into taxable, but person B could have also diverted into the qualified funds in preference to the debt as well and pay off the debt in 4 years instead of 3, so i excluded that variable. Both people would have continued investing beyond year 13 and used their qualified accounts, but from year 13 onward, they are at the same point as of the debt, so i stopped there.

Both people obviously can be very well off regardless.... but the 529 can be like a mega-front-door Roth for high earners :)
Last edited by Finance-MD on Fri Apr 14, 2017 12:10 pm, edited 4 times in total.

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randomizer
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Re: 529/son got accepted to medical school whahoooo!

Post by randomizer » Fri Apr 14, 2017 12:26 am

Move it all to cash and enjoy sleeping well
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Re: 529/son got accepted to medical school whahoooo!

Post by market timer » Fri Apr 14, 2017 3:56 am

With 0-4 years until the money is spent, use cash or a short term bond fund.

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Re: 529/son got accepted to medical school whahoooo!

Post by SGM » Fri Apr 14, 2017 7:31 am

In 529s we never had more than 1 year in bond funds and the rest in stock funds. It worked out fine for us, but I have always been lucky. No way would I keep it all in cash or bonds, but to each his own.

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Re: 529/son got accepted to medical school whahoooo!

Post by remomnyc » Fri Apr 14, 2017 10:28 am

Ours kids' 529 accounts are in Vanguard aggressive age-based portfolios. From age 11 to 15, they are 50% stocks/50% bonds. From age 16 to 18, they are 25% stocks/75% bonds. At age 19, they go to 75% bonds and 25% short-term reserves. I would be uncomfortable with a large stock allocation during the withdrawal stage unless you have lots of cash reserves to make up any large shortfalls.

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Re: 529/son got accepted to medical school whahoooo!

Post by Leemiller » Fri Apr 14, 2017 10:47 am

I would move to cash in a heartbeat. You've won, don't be greedy. Congrats on both your son's success and your own!

As for PSLF, I just heard of a pending lawsuit where some grads relied on a representation that their job qualified except oops it didn't. I would be shocked if the program doesn't undergo massive changes in the next five years.

During the financial crisis, I heard enough stories of parents losing their high paying jobs while the market was down - thus forcing kids to transfer or leave their programs - so I'd not risk it.

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Re: 529/son got accepted to medical school whahoooo!

Post by Finance-MD » Fri Apr 14, 2017 12:08 pm

updated above post with simulation of spending down 529 vs keeping 529 invested.
not making a recommendation either way, just showing the mathematical data for mathematical data-driven decision making

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