Shift bonds from IRA to 529?

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Ultralight Hiker
Posts: 25
Joined: Mon Jun 04, 2012 8:04 pm

Shift bonds from IRA to 529?

Post by Ultralight Hiker » Tue Dec 12, 2017 10:16 am

Hello fellow bogleheads,

We have met our "529 number" for our two kids, who are now 9 and 12. Indeed the accounts may be a little over-funded. However, we have not yet met our "retirement number". Overall we have an 80/20 allocation of stocks/bonds and would like to maintain this level.

Proposed plan:
-Move the 529 plans entirely into bonds, and then exchange the equivalent amount of bonds to stocks in our IRAs or other tax advantaged space.
-When kids are in college and we sell the 529 bonds, we then exchange the equivalent amount of stocks for bonds in our IRAs.

Rationale:
-If stocks continue to increase over the next 10-15 years, our retirement accounts will benefit and the kids will still have college more or less covered.
-If stocks tank, our IRAs will have additional time to recover and the kids will still have college more or less covered.
-The overall risk of our portfolio remains the same.

I'd appreciate comments and thoughts about this plan.

Thanks,
ULH

mhalley
Posts: 5322
Joined: Tue Nov 20, 2007 6:02 am

Re: Shift bonds from IRA to 529?

Post by mhalley » Tue Dec 12, 2017 9:57 pm

I don’t consider my 529 plan as being part of my asset allocation or net worth. Certainly if you have reached your goal, adjusting the 529 allocation is reasonable, but I don’t think I would change my retirement account aa. Depending on the size of the 529 compared to your retirement accounts, how much of a percent change in your retirement funds are you talking about?

Spirit Rider
Posts: 6836
Joined: Fri Mar 02, 2007 2:39 pm

Re: Shift bonds from IRA to 529?

Post by Spirit Rider » Tue Dec 12, 2017 10:42 pm

An all bond allocation is not your lowest risk option. You should look at what your 529 plan has for an income/college portfolio. If they don't have that, something like 25% equities, 50% bonds and 25% cash is a lower risk option than an all bond portfolio.

Ultralight Hiker
Posts: 25
Joined: Mon Jun 04, 2012 8:04 pm

Re: Shift bonds from IRA to 529?

Post by Ultralight Hiker » Wed Dec 13, 2017 6:47 pm

mhalley wrote:
Tue Dec 12, 2017 9:57 pm
I don’t consider my 529 plan as being part of my asset allocation or net worth. Certainly if you have reached your goal, adjusting the 529 allocation is reasonable, but I don’t think I would change my retirement account aa. Depending on the size of the 529 compared to your retirement accounts, how much of a percent change in your retirement funds are you talking about?
Under my proposed plan, $180000 would be converted to bonds in the 529 and the same amount to stocks in the IRA. This is about of 13% of total retirement funds.

The idea is to be more conservative in 529 space and juice IRA space.

inbox788
Posts: 4343
Joined: Thu Mar 15, 2012 5:24 pm

Re: Shift bonds from IRA to 529?

Post by inbox788 » Wed Dec 13, 2017 9:41 pm

Ultralight Hiker wrote:
Wed Dec 13, 2017 6:47 pm
mhalley wrote:
Tue Dec 12, 2017 9:57 pm
I don’t consider my 529 plan as being part of my asset allocation or net worth. Certainly if you have reached your goal, adjusting the 529 allocation is reasonable, but I don’t think I would change my retirement account aa. Depending on the size of the 529 compared to your retirement accounts, how much of a percent change in your retirement funds are you talking about?
Under my proposed plan, $180000 would be converted to bonds in the 529 and the same amount to stocks in the IRA. This is about of 13% of total retirement funds.

The idea is to be more conservative in 529 space and juice IRA space.
It makes little difference, just be cognizant of what you're doing. Are you trying to change your AA (especially if you're considering tax consequences)? What happens when you use the bonds (basically saved up cash with a little interest) to pay for tuition? Will you adjust your IRA AA? Or plan to keep the higher equities?

Also, are you using equal dollars in IRA vs Roth/529? Or are you adjusting for the tax prepayment?

Ultralight Hiker
Posts: 25
Joined: Mon Jun 04, 2012 8:04 pm

Thanks!

Post by Ultralight Hiker » Fri Dec 29, 2017 11:04 pm

Thanks for the suggestions everyone!

Inbox -- your questions were very helpful for sharpening my thinking.

I've decided to keep things simple, and keep retirement and college savings totally separate. I'll let the college retirement accounts glide down via the "Aggressive" 529 option.

ULH

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