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Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:31 am
by shm317
A fairly straight forward question. Do you guys include 529 balances in your overall asset allocation even though it has a different time horizon and purpose? For example my overall AA is 75%/25% stocks/bonds. My 529 is on a glide path allocation that will become more bond heavy over the next 10 years. I can’t decide if I should start excluding the 529 from the consolidated AA. All my other savings/investments are earmarked for retirement/early retirement.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:33 am
by ThankYouJack
No, I don't. Even though I don't have much of a 529 balance it has a different timeframe and is for a different purpose so I don't think it makes sense to include it.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:34 am
by fabdog
I do not include the 529's in our asset allocation. As you note, it's for a specific purpose and timeline, and has it's own AA appropriate to that.

Mike

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:38 am
by sometimesinvestor
There are different risks given the different time frames for when the money will be needed. IT seems to me the asset allocation in each account may be different or the same but the only reason to combine them in your mind is so you can answer the question What is your asset allocation with one number and that does not seem likea very good reason

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:39 am
by CalcHP12c
529 is only account we exclude from our AA tracking, Thus thread has reassured me that is ok. I was sure I was breaking some sacred boglehead tenet :)

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:39 am
by Triple digit golfer
No. I don't include it when rebalancing either.

Here are my "buckets" of money. The "everything else" category is 95% of the total and the only thing I do and ever will include in asset allocation. The other things are separate and therefore not counted.

Savings - couple months of expenses typically, and where I add for upcoming expenses such as our next cars, saving for home repairs, etc.

529

UTMA for our child - cash gifts from family go here.

Everything else - 401k, all IRAs, taxable investments. This is what I include in asset allocation.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:40 am
by L82GAME
fabdog wrote: Sun Feb 09, 2020 10:34 am I do not include the 529's in our asset allocation. As you note, it's for a specific purpose and timeline, and has it's own AA appropriate to that.

Mike
+1 (edit)... and is accordingly in a Vanguard TDF unto itself

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:43 am
by Wiggums
fabdog wrote: Sun Feb 09, 2020 10:34 am I do not include the 529's in our asset allocation. As you note, it's for a specific purpose and timeline, and has it's own AA appropriate to that.

Mike
+1

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:44 am
by 1789
Of course “NO”

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:54 am
by shm317
Welp that makes my decision easy. Thanks guys

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:55 am
by abuss368
We do not include it as it is not considered as part of the retirement portfolio. In fact the account will not be there is a few years as the college bills start coming!

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 10:57 am
by mottooscillator
I'm an outlier here in that I do include it. I worked with a financial planner from Vanguard who helped me come up with a plan and a target asset allocation. One reason I chose to include my 529 is that my retirement date is set to coincide pretty closely with when my kid will start college.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 11:01 am
by regularguy455
mottooscillator wrote: Sun Feb 09, 2020 10:57 am I'm an outlier here in that I do include it. I worked with a financial planner from Vanguard who helped me come up with a plan and a target asset allocation. One reason I chose to include my 529 is that my retirement date is set to coincide pretty closely with when my kid will start college.
+1

I’m sure people will have a lot to say about this but the alternative for college funding was fund it through a Roth and plan on pulling it out. Do people that use Roth’s this way omit the anticipated cost of college from their AA?

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 4:20 pm
by goodenyou
No. There was a near 100% likelihood of consumption. I don't put it in our AA because I don't include it in our portfolio. It will exist for only a short (relatively) period of time. Essentially I view(ed) education costs as a sunk cost.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 5:45 pm
by happymob
goodenyou wrote: Sun Feb 09, 2020 4:20 pm No. There was a near 100% likelihood of consumption. I don't put it in our AA because I don't include it in our portfolio. It will exist for only a short (relatively) period of time. Essentially I view(ed) education costs as a sunk cost.
I question the near 100% likelihood of consumption. I know a lot of really smart people who got full rides to public flagship universities (maybe could have used 529 in grad school, but for many grad school was also covered because they were going STEM PhD and not med or law or MBA). I also know, including myself, students who dropped out of college after a couple years due to a variety of issues (substance abuse, mental illness, etc). Their path mostly took them back to college eventually, but it was complicated. Some go the ROTC or military academy route. Some go the College of the Ozarks or Berea College route. My kids might go to our local Directional State U and get free tuition based on my wife working there. Point is, a lot of college-ready kids don't actually need 4 years of college tuition for both really great and not-so-great reasons.

I agree that whatever we have left over from our 529 will likely eventually get used, even if with a later generation (though that is an argument for a more aggressive asset allocation).

We include 529s in our asset allocation and bias the asset allocation slightly towards more bonds because it is likely a shorter term need. The 529 plans themselves are 100% equities and the bond portion is in other non-529 accounts.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 6:25 pm
by goodenyou
happymob wrote: Sun Feb 09, 2020 5:45 pm
goodenyou wrote: Sun Feb 09, 2020 4:20 pm No. There was a near 100% likelihood of consumption. I don't put it in our AA because I don't include it in our portfolio. It will exist for only a short (relatively) period of time. Essentially I view(ed) education costs as a sunk cost.
I question the near 100% likelihood of consumption. I know a lot of really smart people who got full rides to public flagship universities (maybe could have used 529 in grad school, but for many grad school was also covered because they were going STEM PhD and not med or law or MBA). I also know, including myself, students who dropped out of college after a couple years due to a variety of issues (substance abuse, mental illness, etc). Their path mostly took them back to college eventually, but it was complicated. Some go the ROTC or military academy route. Some go the College of the Ozarks or Berea College route. My kids might go to our local Directional State U and get free tuition based on my wife working there. Point is, a lot of college-ready kids don't actually need 4 years of college tuition for both really great and not-so-great reasons.

I agree that whatever we have left over from our 529 will likely eventually get used, even if with a later generation (though that is an argument for a more aggressive asset allocation).

We include 529s in our asset allocation and bias the asset allocation slightly towards more bonds because it is likely a shorter term need. The 529 plans themselves are 100% equities and the bond portion is in other non-529 accounts.
For us, it was near 100% consumption. And, I am close to 100% correct. The kids are blowing through the 529 at a rapid pace with one in graduate school and one in undergrad. Almost finished at 100% FDIC since they started college. One more to start in 1.5 years. All 3 got a merit-based free ride from their parents.

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 6:53 pm
by am
Say you were saving for college in a taxable account, would you include it then? I use a 529 and ignore it assuming it will be entirely consumed and then some. Would be a lot closer to my number if I added it to my savings

Re: Include 529 in overall asset allocation??

Posted: Sun Feb 09, 2020 7:28 pm
by goodenyou
am wrote: Sun Feb 09, 2020 6:53 pm Say you were saving for college in a taxable account, would you include it then? I use a 529 and ignore it assuming it will be entirely consumed and then some. Would be a lot closer to my number if I added it to my savings
That would be the same as saving for an earmarked item. If I were as certain that I was going to purchase something (for someone else) as I was about paying for my kids' college costs (near 100%), then it wouldn't matter where the money is saved. A 529 plan saved us a tremendous amount in capital gains and dividends over the last 16 years.

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 5:35 pm
by happymob
goodenyou wrote: Sun Feb 09, 2020 6:25 pm
happymob wrote: Sun Feb 09, 2020 5:45 pm
goodenyou wrote: Sun Feb 09, 2020 4:20 pm No. There was a near 100% likelihood of consumption. I don't put it in our AA because I don't include it in our portfolio. It will exist for only a short (relatively) period of time. Essentially I view(ed) education costs as a sunk cost.
I question the near 100% likelihood of consumption. I know a lot of really smart people who got full rides to public flagship universities (maybe could have used 529 in grad school, but for many grad school was also covered because they were going STEM PhD and not med or law or MBA). I also know, including myself, students who dropped out of college after a couple years due to a variety of issues (substance abuse, mental illness, etc). Their path mostly took them back to college eventually, but it was complicated. Some go the ROTC or military academy route. Some go the College of the Ozarks or Berea College route. My kids might go to our local Directional State U and get free tuition based on my wife working there. Point is, a lot of college-ready kids don't actually need 4 years of college tuition for both really great and not-so-great reasons.

I agree that whatever we have left over from our 529 will likely eventually get used, even if with a later generation (though that is an argument for a more aggressive asset allocation).

We include 529s in our asset allocation and bias the asset allocation slightly towards more bonds because it is likely a shorter term need. The 529 plans themselves are 100% equities and the bond portion is in other non-529 accounts.
For us, it was near 100% consumption. And, I am close to 100% correct. The kids are blowing through the 529 at a rapid pace with one in graduate school and one in undergrad. Almost finished at 100% FDIC since they started college. One more to start in 1.5 years. All 3 got a merit-based free ride from their parents.
Already in college and seemingly being successful... yeah, confidence level goes up a ton. But the kid starting in 1.5 years... don't be shocked if something goes wrong. It happens. Be supportive and if they are smart there's a great chance they will get around to college later, but it's not 100%.

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 6:40 pm
by JonnyDVM
mottooscillator wrote: Sun Feb 09, 2020 10:57 am I'm an outlier here in that I do include it. I worked with a financial planner from Vanguard who helped me come up with a plan and a target asset allocation. One reason I chose to include my 529 is that my retirement date is set to coincide pretty closely with when my kid will start college.
I also include it. While 529 is earmarked for a specific purpose I see it as part of the total portfolio. If the balance drops 50%, did my portfolio not lose any money? Also many past threads here about parents ultimately not using their 529s.

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 7:50 pm
by 986racer
I include it

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 8:23 pm
by am
Would you retire if you hit you just hit your number with 529 included and kids were getting ready to go to college? I know I wouldn’t.

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 8:28 pm
by TallBoy29er
Yes I do

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 8:29 pm
by TallBoy29er
am wrote: Mon Feb 10, 2020 8:23 pm Would you retire if you hit you just hit your number with 529 included and kids were getting ready to go to college? I know I wouldn’t.
That argument addresses net worth, not asset allocation.

Re: Include 529 in overall asset allocation??

Posted: Mon Feb 10, 2020 9:13 pm
by goodenyou
happymob wrote: Mon Feb 10, 2020 5:35 pm
goodenyou wrote: Sun Feb 09, 2020 6:25 pm
happymob wrote: Sun Feb 09, 2020 5:45 pm
goodenyou wrote: Sun Feb 09, 2020 4:20 pm No. There was a near 100% likelihood of consumption. I don't put it in our AA because I don't include it in our portfolio. It will exist for only a short (relatively) period of time. Essentially I view(ed) education costs as a sunk cost.
I question the near 100% likelihood of consumption. I know a lot of really smart people who got full rides to public flagship universities (maybe could have used 529 in grad school, but for many grad school was also covered because they were going STEM PhD and not med or law or MBA). I also know, including myself, students who dropped out of college after a couple years due to a variety of issues (substance abuse, mental illness, etc). Their path mostly took them back to college eventually, but it was complicated. Some go the ROTC or military academy route. Some go the College of the Ozarks or Berea College route. My kids might go to our local Directional State U and get free tuition based on my wife working there. Point is, a lot of college-ready kids don't actually need 4 years of college tuition for both really great and not-so-great reasons.

I agree that whatever we have left over from our 529 will likely eventually get used, even if with a later generation (though that is an argument for a more aggressive asset allocation).

We include 529s in our asset allocation and bias the asset allocation slightly towards more bonds because it is likely a shorter term need. The 529 plans themselves are 100% equities and the bond portion is in other non-529 accounts.
For us, it was near 100% consumption. And, I am close to 100% correct. The kids are blowing through the 529 at a rapid pace with one in graduate school and one in undergrad. Almost finished at 100% FDIC since they started college. One more to start in 1.5 years. All 3 got a merit-based free ride from their parents.
Already in college and seemingly being successful... yeah, confidence level goes up a ton. But the kid starting in 1.5 years... don't be shocked if something goes wrong. It happens. Be supportive and if they are smart there's a great chance they will get around to college later, but it's not 100%.
I took the chance to save a (free) 5 digits in capital gains taxes and dividend taxes for the risk of paying the taxes and a 10% penalty in the future if the funds were never used for qualified higher education expenses. It was a bet worth taking. Between 3 kids and multiple combinations of graduate and undergraduate needs and any leftover for legacy for grandkids, it was 100%. With an EFC >$99k per year per child, there was very little chance of aid. I am well aware of circuitous pathways to education. The kids are in no danger of being throw out of the family for failure.

I don’t include the 529 in my net worth nor my AA. The very large cash position (though dwindling rapidly) would potentially skew my fixed income portion of my portfolio. Thus, it would force me to take more risk in equities to keep with my target AA. Just like an emergency fund, I don’t include it for that reason.