529 asset allocation during college years

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RetiredCSProf
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529 asset allocation during college years

Post by RetiredCSProf » Tue Jul 03, 2018 10:30 pm

My son's 529 fund is invested in the Vanguard Nevada plan. He has $100K in the account, but will likely use less than $25K of it to complete his B.A. (in the next 2-3 years). He may want to continue on to graduate school for a master's degree; that is, grad school is at least 3 years into the future.

The fund is in the aggressive age-based plan, adjusted to its most conservative bracket (due to his being over 19); this is 10% equities and 90% bonds. I'm considering re-allocating into a slightly more aggressive mix, maybe a combination of money market and the Vanguard Conservative Growth 529 fund 25/75 mix).

Any suggestions?

megabad
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Re: 529 asset allocation during college years

Post by megabad » Tue Jul 03, 2018 10:43 pm

RetiredCSProf wrote:
Tue Jul 03, 2018 10:30 pm
My son's 529 fund is invested in the Vanguard Nevada plan. He has $100K in the account, but will likely use less than $25K of it to complete his B.A. (in the next 2-3 years). He may want to continue on to graduate school for a master's degree; that is, grad school is at least 3 years into the future.

The fund is in the aggressive age-based plan, adjusted to its most conservative bracket (due to his being over 19); this is 10% equities and 90% bonds. I'm considering re-allocating into a slightly more aggressive mix, maybe a combination of money market and the Vanguard Conservative Growth 529 fund 25/75 mix).

Any suggestions?
I tend to be conservative with 529 planning so I like the idea of including cash reserves or money market as you indicated. On a 3-4 year time horizon though, I would likely have near 0% equities. Side note, it seems as if son's undergrad will not use up most of the account which is a blessing but can turn into a curse. Unless you are very confident of an expensive grad school stint or you have another child, I would really make sure to spend every qualified dime you can from 529 first before using his funds (he should save or Roth IRA) or any of your other fund sources. You do not want money left over.

inbox788
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Re: 529 asset allocation during college years

Post by inbox788 » Tue Jul 03, 2018 10:47 pm

I'm on the other extreme. I think I'll be fully invested in 100% equities index fund that I'm invested in now and will invest in same during college years. If I get cold feet, I will make some adjustment in my retirement funds, but plan to keep the 529 invested fully. I'm not positive it makes any difference or sense, but retirement is tax-deferred, while 529 is tax-free gains, so I figure I want to maximize the immediate tax-free benefits. Also, I have some Roth space to play around with. I think it turns out to be a wash in the worst case.

livesoft
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Re: 529 asset allocation during college years

Post by livesoft » Wed Jul 04, 2018 4:35 am

Tell us what you are going to do with the money please. It doesn't seem like you are going to use it for college anyways. Are you trying to go for the biggest penalty?
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alrick
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Re: 529 asset allocation during college years

Post by alrick » Wed Jul 04, 2018 7:07 am

If you end up with money not used, you can always change the beneficiary of the 529 fund......perhaps to a niece, nephew......or even a grandchild if any are on the horizon.

sabtastic
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Re: 529 asset allocation during college years

Post by sabtastic » Wed Jul 04, 2018 8:26 am

It sounds like he hasn't even started college yet. I'd say leave it where it is until at least the end of year 2. A lot can change during those first few years, and if an expensive professional school appears on the horizon you might want every dollar of that 100k to be right where it is.

A friend of mine had his son go to state aiming for a BS in Biological Sciences but went on to get his DDS from UOP. It was....expensive.

ENT Doc
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Re: 529 asset allocation during college years

Post by ENT Doc » Wed Jul 04, 2018 8:32 am

megabad wrote:
Tue Jul 03, 2018 10:43 pm
RetiredCSProf wrote:
Tue Jul 03, 2018 10:30 pm
My son's 529 fund is invested in the Vanguard Nevada plan. He has $100K in the account, but will likely use less than $25K of it to complete his B.A. (in the next 2-3 years). He may want to continue on to graduate school for a master's degree; that is, grad school is at least 3 years into the future.

The fund is in the aggressive age-based plan, adjusted to its most conservative bracket (due to his being over 19); this is 10% equities and 90% bonds. I'm considering re-allocating into a slightly more aggressive mix, maybe a combination of money market and the Vanguard Conservative Growth 529 fund 25/75 mix).

Any suggestions?
I tend to be conservative with 529 planning so I like the idea of including cash reserves or money market as you indicated. On a 3-4 year time horizon though, I would likely have near 0% equities. Side note, it seems as if son's undergrad will not use up most of the account which is a blessing but can turn into a curse. Unless you are very confident of an expensive grad school stint or you have another child, I would really make sure to spend every qualified dime you can from 529 first before using his funds (he should save or Roth IRA) or any of your other fund sources. You do not want money left over.
I disagree with this premise. Additional 529 money can be gifted under the annual gifting amount to future generations. With a few kids and 5 year lump disbursements that excess can vanish quickly without utilizing your kids' cash flow.

megabad
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Re: 529 asset allocation during college years

Post by megabad » Wed Jul 04, 2018 11:45 pm

ENT Doc wrote:
Wed Jul 04, 2018 8:32 am
I disagree with this premise. Additional 529 money can be gifted under the annual gifting amount to future generations. With a few kids and 5 year lump disbursements that excess can vanish quickly without utilizing your kids' cash flow.
Fair point on the "generational educational fund" possibility. I would personally prefer using other tax advantaged accounts first to pass on money to heirs, but certainly a consideration.

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goodenyou
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Re: 529 asset allocation during college years

Post by goodenyou » Thu Jul 05, 2018 7:42 am

What is your goal? If you believe that it is “impossible” to lose enough to put his college funding at risk (go below $25k), then let it ride in an aggressive allocation. Is your goal to maximize growth at all cost? If you hit a home run and there is a lot of money leftover, just pay the tax and penalty and repurpose the money towards retirement. My view of 529 money has been different. College expenses are a sunk cost and once I met all the costs, I locked it in a low risk allocation. But, I have 3 and the different possibilities of graduate school are such that the money will be consumed by educational expenses. In the long run, your son will appreciate that he has a guarantee of money available to insulate himself from debt if it remains in a “safe” investment vehicle.
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RetiredCSProf
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Re: 529 asset allocation during college years

Post by RetiredCSProf » Thu Jul 05, 2018 12:33 pm

sabtastic wrote:
Wed Jul 04, 2018 8:26 am
It sounds like he hasn't even started college yet. I'd say leave it where it is until at least the end of year 2. A lot can change during those first few years, and if an expensive professional school appears on the horizon you might want every dollar of that 100k to be right where it is.
(OP) He is at the end of "year 2." My son has finished his AA degree at community college (CC). It took 3 years for his AA; he is transferring to a local, 4-year state university in the fall ($8K annual tuition). It will take him at least two years to finish his BA, more likely 5 semesters, but definitely no more than three years. His current goal is follow with a master's degree at USC (3-year program, $60K tuition per year).

My goals are (1) to preserve $20K-$25K for completing his BA and (2) to allow some growth in the balance of the 529 for graduate school. I kept the 529 fund in the 10% equity / 90% bonds asset allocation while he was in CC. It has been steadily losing about 1-2% per year. I drew from of his Education Savings Account to pay for tuition at CC.

He is my only child; his first cousins are older and have all completed their education. If he does not use all the 529 for education, he can withdraw the balance and take the penalty (10% plus income tax at his rate) on the earnings. Or he can transfer the balance to my future grandchildren.

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