529: high cost funds, kid isn't seeking education

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shyplastic
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529: high cost funds, kid isn't seeking education

Post by shyplastic »

Over the years, my father (mostly) and I have saved 150K for my sibling's kid/his grandchild as beneficiary in a 529 account. They are 18 now and have decided, at least for the moment, to not seek secondary education. It's currently sitting in a CollegeAmerica 529 which only has American Funds Mutual funds available. For the moment, there's also some Edward Jones involvement through my dad's advisor.

We're not putting more money into the 529 obviously. What is the right thing to do? Roll it over, but to where?
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retired@50
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Re: 529: high cost funds, kid isn't seeking education

Post by retired@50 »

shyplastic wrote: Wed Sep 08, 2021 1:17 pm What is the right thing to do? Roll it over, but to where?
Both Vanguard and Fidelity offer low-expense 529 accounts. Take your pick, you almost certainly couldn't do worse.

Vanguard 529 FAQ: https://investor.vanguard.com/529-plan/common-questions

Regards,
This is one person's opinion. Nothing more.
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Wiggums
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Re: 529: high cost funds, kid isn't seeking education

Post by Wiggums »

retired@50 wrote: Wed Sep 08, 2021 1:20 pm
shyplastic wrote: Wed Sep 08, 2021 1:17 pm What is the right thing to do? Roll it over, but to where?
Both Vanguard and Fidelity offer low-expense 529 accounts. Take your pick, you almost certainly couldn't do worse.

Vanguard 529 FAQ: https://investor.vanguard.com/529-plan/common-questions

Regards,
+1
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
Topic Author
shyplastic
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Re: 529: high cost funds, kid isn't seeking education

Post by shyplastic »

Anything aside from rolling over to do ?
vasaver
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Re: 529: high cost funds, kid isn't seeking education

Post by vasaver »

If you took the Virginia state income tax deduction it might be clawed back if you move the funds to a 529 plan outside of Virginia. It looks like you can move between CollegeAmerica -> Invest529 (very low fee) in the Virginia plan.

More details can be found in this presentation https://www.virginia529.com/learn/manag ... rginia529/

"Well, first of all, if you're going to move from CollegeAmerica to Invest529, this is really termed an investment change. And keep in mind, you can do two investment changes per year without a penalty."
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rob
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Re: 529: high cost funds, kid isn't seeking education

Post by rob »

Whoever is the custodian can move to a new beneficiary tax free - is that a desirable option? If that is grandparent - make sure they have a contingent.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
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retired@50
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Re: 529: high cost funds, kid isn't seeking education

Post by retired@50 »

shyplastic wrote: Wed Sep 08, 2021 1:37 pm Anything aside from rolling over to do ?
I'm not certain about a 529 rollover, but I'm guessing you don't really want to do an in-kind transfer. I suspect you're trying to escape high-expense ratio mutual fund investments, so, you'll probably need to decide on which stock and/or bond index funds to use at the new custodian.

You can always consider the age-adjusted investment plans as well. These will prevent you from making further decisions about asset allocation and the timing of moving from stocks toward bonds and college age nears.

Regards,
This is one person's opinion. Nothing more.
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shyplastic
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Re: 529: high cost funds, kid isn't seeking education

Post by shyplastic »

I'm the custodian, I just made some poor choices before I knew better, and my father went along and contributed cash.

I'll see about Invest529 or moving to Vanguard/Fidelity. As a non-resident and the custodian, the Virginia tax deduction wasn't available to me, so that shouldn't be an issue.

There is no other obvious beneficiary in the family. I suspect that in the super long term, there's going to be a penalized withdrawal eventually, but maybe the grandchild will change their mind.
BernardShakey
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Re: 529: high cost funds, kid isn't seeking education

Post by BernardShakey »

shyplastic wrote: Wed Sep 08, 2021 1:17 pm Over the years, my father (mostly) and I have saved 150K for my sibling's kid/his grandchild as beneficiary in a 529 account. They are 18 now and have decided, at least for the moment, to not seek secondary education. It's currently sitting in a CollegeAmerica 529 which only has American Funds Mutual funds available. For the moment, there's also some Edward Jones involvement through my dad's advisor.

We're not putting more money into the 529 obviously. What is the right thing to do? Roll it over, but to where?
The kid is only 18. Maybe let the money sit and see what happens ---- a lot of high school graduates aren't ready for college at 18 but they are at 20 or 21.
An important key to investing is having a well-calibrated sense of your future regret.
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asset_chaos
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Re: 529: high cost funds, kid isn't seeking education

Post by asset_chaos »

529s can be used for tuition and costs of attendance (living expenses) and supplies for trade schools, vocational schools, associate degrees, several educational/training pathways besides college. Maybe the kids are more inclined towards one of those options.
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shess
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Re: 529: high cost funds, kid isn't seeking education

Post by shess »

shyplastic wrote: Wed Sep 08, 2021 8:53 pm There is no other obvious beneficiary in the family. I suspect that in the super long term, there's going to be a penalized withdrawal eventually, but maybe the grandchild will change their mind.
Keep in mind that the penalties and interest only apply to the gains. So if you put in $10k, and it grows to $25k, and you do a disqualifying distribution of the entire amount, you pay income tax and a 10% penalty on the $15k in gains. Gains and original contributions are always distributed pro-rata from 529 plans, so you can't just take out what you originally put in and let the rest ride.

Personally, I think I'd think on whether I consider it the owner's money, or the beneficiary's money. If I were owner and considered it my money, I might decide to put the fund in a low-return part of my asset allocation (fixed income, say), and make a corresponding shift to equities in my 401k (which has the income tax but not the penalty). This reduces the new costs the funds are generating, and maybe some qualifying option will come up for the money.

If I would consider it the beneficiary's money, I might ask them what to invest in, but NOT give them control of the money at this time so as not to set up poor incentives. Like maybe once they're out working and living their life, they can receive control of the funds for use in continuing education WRT the things they decide to do with their lives. Or they can bank it against future kids. Or if they want to cash it out, their income-tax rate is likely lower.

They don't have to use the funds for explicitly career-oriented schooling, but they do have to be used at an accredited school. For instance, I'm retired and take some ceramics courses. My understanding is that if I take a course at the local community college, I could use 529 funds, but if I take a similar course at our city's community arts center, I cannot (they are not accredited).
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shyplastic
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Re: 529: high cost funds, kid isn't seeking education

Post by shyplastic »

Thanks all for the advice, it's greatly appreciated.

I've set up a VA Invest529 and things will roll over from CollegeAmerica as soon as I get all the documents in the mail and they process them.
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dziuniek
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Re: 529: high cost funds, kid isn't seeking education

Post by dziuniek »

Some of us are late bloomers, like me.

Highschool gpa maybe 2.3-2.5... failed 3 quarters of Algebra II.... passed q4 with an A-... anyways.

Now a bachelors in accounting from top 25 public university....

MS in Accounting

+

MBA.

Ya never know! ;)
Get rich or die tryin'
vasaver
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Re: 529: high cost funds, kid isn't seeking education

Post by vasaver »

If you can stick with the index funds
https://www.virginia529.com/invest/performance/#index

or the Aggressive, Moderate, Conservative Growth options (they map to the Vanguard LifeStrategy funds).

https://www.virginia529.com/invest/perf ... arget-risk

Fees creep up with the active/target funds in the virginia 529.
stoptothink
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Re: 529: high cost funds, kid isn't seeking education

Post by stoptothink »

dziuniek wrote: Tue Sep 14, 2021 9:50 am Some of us are late bloomers, like me.

Highschool gpa maybe 2.3-2.5... failed 3 quarters of Algebra II.... passed q4 with an A-... anyways.

Now a bachelors in accounting from top 25 public university....

MS in Accounting

+

MBA.

Ya never know! ;)
My wife dropped out after 1 semester at 18, despite being on a full scholarship (music performance, she was a mediocre - at best - high school student). She went back to school at 30, finished at 33 with a 4.0 and would undoubtedly be looking at top MBA programs if she hadn't just accepted a major promotion (pretty much making further formal ed irrelevant).
Topic Author
shyplastic
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Re: 529: high cost funds, kid isn't seeking education

Post by shyplastic »

vasaver wrote: Tue Sep 14, 2021 10:01 am If you can stick with the index funds
https://www.virginia529.com/invest/performance/#index

or the Aggressive, Moderate, Conservative Growth options (they map to the Vanguard LifeStrategy funds).

https://www.virginia529.com/invest/perf ... arget-risk

Fees creep up with the active/target funds in the virginia 529.
Thank you, I had already picked the "Target Risk - Moderate" for them (not the high-fee 'active' version), which seems to be a 60/40 equities/bonds with index funds. Much appreciated!
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