[529 as part of an overall portfolio]

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sal paradise
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[529 as part of an overall portfolio]

Post by sal paradise » Sun Mar 11, 2018 2:07 pm

[Moved into a stand-alone post --admin LadyGeek]

for folks that use 529's as part of overall portfolio, how's it working out? i view 529's in same light. i will have to pay for kiddos college through cash flow regardless. i view it the same as my hsa. granted, i can tap my hsa without penalty with eligible medical expenses; however, if taxable account is large enough i shouldn't need to withdraw from hsa and can let that money continue to grow tax deferred.

Spirit Rider
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Re: [529 as part of an overall portfolio]

Post by Spirit Rider » Sun Mar 11, 2018 8:17 pm

A 529 is not like an HSA.

You can only make tax-free withdrawals from a 529 in the same year as qualified education expenses.

Use them or lose them.

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JoeRetire
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Re: [529 as part of an overall portfolio]

Post by JoeRetire » Sun Mar 11, 2018 8:19 pm

Spirit Rider wrote:
Sun Mar 11, 2018 8:17 pm
Use them or lose them.
Or, instead of losing them, change the beneficiary to be someone that will use them.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

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Re: [529 as part of an overall portfolio]

Post by Grt2bOutdoors » Sun Mar 11, 2018 8:34 pm

sal paradise wrote:
Sun Mar 11, 2018 2:07 pm
[Moved into a stand-alone post --admin LadyGeek]

for folks that use 529's as part of overall portfolio, how's it working out? i view 529's in same light. i will have to pay for kiddos college through cash flow regardless. i view it the same as my hsa. granted, i can tap my hsa without penalty with eligible medical expenses; however, if taxable account is large enough i shouldn't need to withdraw from hsa and can let that money continue to grow tax deferred.
Cash flow is what you get after paying taxes. Payments from a 529 plan are a combination of after-tax contributions and “tax-free” gains, if you structure it properly. Nope, cash flow is the most costly method of paying for school after using educational loans.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Spirit Rider
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Re: [529 as part of an overall portfolio]

Post by Spirit Rider » Sun Mar 11, 2018 9:55 pm

JoeRetire wrote:
Sun Mar 11, 2018 8:19 pm
Spirit Rider wrote:
Sun Mar 11, 2018 8:17 pm
Use them or lose them.
Or, instead of losing them, change the beneficiary to be someone that will use them.
I was referring to the tax-free withdrawals not the 529 assets.

With an HSA, you have your lifetime and possibly a spouse's lifetime to take tax-free distributions for all unreimbursed qualified medical expenses since your 1st contiguous HSA. This can be decades later.

It sounded like the OP thought they could do the same with a 529. I was simply pointing out you can only take tax-free withdrawals in the same tax year as the qualified education expenses.

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sal paradise
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Re: [529 as part of an overall portfolio]

Post by sal paradise » Mon Mar 12, 2018 9:10 am

I get that a 529 is not like an HSA, I was merely trying to compare them in the same light as being part of someone's overall portfolio. If a taxable account is large enough, wouldn't it make more sense to pay medical expenses from the taxable account and keep the HSA untouched? In my case, I view the HSA as part of my overall portfolio and keep it all in equities (or whichever is the most appealing fund). Why not do the same for the 529? If the time comes to pay for college expenses then I could use the funds that are in there (which would be in the most appealing fund to round out my AA) and then change my allocation in an IRA to rebalance back to my desired AA. I guess I could also not touch the 529 accounts and let them grow tax deferred for future generations.

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CollegePrudens
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Re: [529 as part of an overall portfolio]

Post by CollegePrudens » Mon Mar 12, 2018 12:34 pm

sal paradise wrote:
Sun Mar 11, 2018 2:07 pm
[Moved into a stand-alone post --admin LadyGeek]

for folks that use 529's as part of overall portfolio, how's it working out?
I (now) treat my 529s as part of my overall assets and include them in my overall AA.

The above was not always the case. In the past I had three separate AAs - one for myself/spouse and one each for my two kids' 529s. Back then, I had intended to fund college for the kids entirely and only out of the 529s.

Since then, I have come to the conclusion that having a single AA was simpler for me and more flexible than three AAs as there are several large uncertainties between now and when the kids are college age.

Luck permitting we'll fund 4 years of in-state tuition for both kids. If the 529s are insufficient, we'll borrow from the rest of our assets. If Luck does not permit the above, then we'll pay the 10% penalty (on earnings) and use the 529 funds for whatever it is that we are dealing with in our (and our kids') lives.

I am at peace with this approach.
We need to learn to want what we have, not to have what we want, in order to get stable and steady happiness - The 14th Dalai Lama

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sal paradise
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Re: [529 as part of an overall portfolio]

Post by sal paradise » Mon Mar 12, 2018 1:12 pm

Thanks for the insight, CollegePrudens.

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Lieutenant.Columbo
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Re: [529 as part of an overall portfolio]

Post by Lieutenant.Columbo » Mon Jun 04, 2018 10:29 pm

CollegePrudens wrote:
Mon Mar 12, 2018 12:34 pm
I (now) treat my 529s as part of my overall assets and include them in my overall AA.

The above was not always the case. In the past I had three separate AAs - one for myself/spouse and one each for my two kids' 529s. Back then, I had intended to fund college for the kids entirely and only out of the 529s.

Since then, I have come to the conclusion that having a single AA was simpler for me and more flexible than three AAs as there are several large uncertainties between now and when the kids are college age.

Luck permitting we'll fund 4 years of in-state tuition for both kids. If the 529s are insufficient, we'll borrow from the rest of our assets. If Luck does not permit the above, then we'll pay the 10% penalty (on earnings) and use the 529 funds for whatever it is that we are dealing with in our (and our kids') lives.

I am at peace with this approach.
CollegePrudens,
Since your two 529 Plans funds (probably) have a shorter time horizon than the rest of your portfolio, didn't it make more sense for such moneys to target their own AAs and AA-Glidepaths as their respective 1st Year College approache?
Can you please give an example showing what your 529s' AAs used to be versus what portfolio's asset class is now held in your 529?
Thanks.
L.C.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Nate79
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Re: [529 as part of an overall portfolio]

Post by Nate79 » Mon Jun 04, 2018 11:17 pm

I include our 529 in our AA. Money is fungible - the 529 being needed in a shorter period of time is irrelevant. I will be pulling a certain amount of money for college expenses when the time comes from either the 529 and/or taxable accounts + cash flow as needed.

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CollegePrudens
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Re: [529 as part of an overall portfolio]

Post by CollegePrudens » Tue Jun 05, 2018 8:00 am

CollegePrudens,
Since your two 529 Plans funds (probably) have a shorter time horizon than the rest of your portfolio, didn't it make more sense for such moneys to target their own AAs and AA-Glidepaths as their respective 1st Year College approache?
Can you please give an example showing what your 529s' AAs used to be versus what portfolio's asset class is now held in your 529?
Thanks.
L.C.
Here is the before and after for my older son -
Before: Vanguard Aggressive Age-based portfolio. It had an AA of 90% stock / 10% bond. {I did not include this 529 in my overall AA}
After: Vanguard Moderate-growth portfolio 50% stock / 50% bond. {I now include this 529 in my overall AA which is 66% stock / 33% bond}

I decided to change to a single AA once I was convinced that big changes in life (medical needs, job changes, kids interests) between now and the the first possible date of college, 11 years away from today, would easily swamp any optimizations I do for 529s. It made sense to me make things simpler using a single AA for my entire portfolio.
We need to learn to want what we have, not to have what we want, in order to get stable and steady happiness - The 14th Dalai Lama

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Lieutenant.Columbo
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Re: [529 as part of an overall portfolio]

Post by Lieutenant.Columbo » Tue Jun 05, 2018 8:48 am

Nate79 wrote:
Mon Jun 04, 2018 11:17 pm
I include our 529 in our AA. Money is fungible - the 529 being needed in a shorter period of time is irrelevant. I will be pulling a certain amount of money for college expenses when the time comes from either the 529 and/or taxable accounts + cash flow as needed.
CollegePrudens wrote:
Tue Jun 05, 2018 8:00 am
Here is the before and after for my older son -
Before: Vanguard Aggressive Age-based portfolio. It had an AA of 90% stock / 10% bond. {I did not include this 529 in my overall AA}
After: Vanguard Moderate-growth portfolio 50% stock / 50% bond. {I now include this 529 in my overall AA which is 66% stock / 33% bond}

I decided to change to a single AA once I was convinced that big changes in life (medical needs, job changes, kids interests) between now and the the first possible date of college, 11 years away from today, would easily swamp any optimizations I do for 529s. It made sense to me make things simpler using a single AA for my entire portfolio.
Thank you both for your replies.

I assume, then, that you will reduce the 529's stock % and increase its bond % over time, as college years approach. If so, will you then do the opposite in your non-529 accounts so as to stay on your target AA?
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Nate79
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Re: [529 as part of an overall portfolio]

Post by Nate79 » Tue Jun 05, 2018 9:49 am

Lieutenant.Columbo wrote:
Tue Jun 05, 2018 8:48 am
Nate79 wrote:
Mon Jun 04, 2018 11:17 pm
I include our 529 in our AA. Money is fungible - the 529 being needed in a shorter period of time is irrelevant. I will be pulling a certain amount of money for college expenses when the time comes from either the 529 and/or taxable accounts + cash flow as needed.
CollegePrudens wrote:
Tue Jun 05, 2018 8:00 am
Here is the before and after for my older son -
Before: Vanguard Aggressive Age-based portfolio. It had an AA of 90% stock / 10% bond. {I did not include this 529 in my overall AA}
After: Vanguard Moderate-growth portfolio 50% stock / 50% bond. {I now include this 529 in my overall AA which is 66% stock / 33% bond}

I decided to change to a single AA once I was convinced that big changes in life (medical needs, job changes, kids interests) between now and the the first possible date of college, 11 years away from today, would easily swamp any optimizations I do for 529s. It made sense to me make things simpler using a single AA for my entire portfolio.
Thank you both for your replies.

I assume, then, that you will reduce the 529's stock % and increase its bond % over time, as college years approach. If so, will you then do the opposite in your non-529 accounts so as to stay on your target AA?
Right now I plan to hold the aggressive allocation fund (I believe it is 100% stock but need to double check) for the time being and adjust my bond allocation in my 401k. This I adjust my target AA for my entire portfolio. I hold 100% stock in my Roth IRA's as well. But my baby is only 6 months old so I have many years to adjust the 529 if I change my mind about this.....

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Lieutenant.Columbo
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Re: [529 as part of an overall portfolio]

Post by Lieutenant.Columbo » Tue Jun 05, 2018 8:35 pm

Nate79 wrote:
Tue Jun 05, 2018 9:49 am
Right now I plan to hold the aggressive allocation fund (I believe it is 100% stock but need to double check) for the time being and adjust my bond allocation in my 401k. This I adjust my target AA for my entire portfolio. I hold 100% stock in my Roth IRA's as well. But my baby is only 6 months old so I have many years to adjust the 529 if I change my mind about this.....
Understood. Thank you.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

confusedinvestor
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Re: [529 as part of an overall portfolio]

Post by confusedinvestor » Thu Jun 07, 2018 12:13 am

My twins are going to collage 11 yrs from now, same situation and i have over funded 529s and underfunded retirements

I plan to use non qual distributions from 529s for my early retirement - age 55 - 65 and thus i am leaning on changing the 529 AA/Glides to my own retirements AA/Glides.
CollegePrudens wrote:
Tue Jun 05, 2018 8:00 am
CollegePrudens,
Since your two 529 Plans funds (probably) have a shorter time horizon than the rest of your portfolio, didn't it make more sense for such moneys to target their own AAs and AA-Glidepaths as their respective 1st Year College approache?
Can you please give an example showing what your 529s' AAs used to be versus what portfolio's asset class is now held in your 529?
Thanks.
L.C.
Here is the before and after for my older son -
Before: Vanguard Aggressive Age-based portfolio. It had an AA of 90% stock / 10% bond. {I did not include this 529 in my overall AA}
After: Vanguard Moderate-growth portfolio 50% stock / 50% bond. {I now include this 529 in my overall AA which is 66% stock / 33% bond}

I decided to change to a single AA once I was convinced that big changes in life (medical needs, job changes, kids interests) between now and the the first possible date of college, 11 years away from today, would easily swamp any optimizations I do for 529s. It made sense to me make things simpler using a single AA for my entire portfolio.

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Lieutenant.Columbo
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Re: [529 as part of an overall portfolio]

Post by Lieutenant.Columbo » Thu Jun 07, 2018 8:46 am

confusedinvestor wrote:
Thu Jun 07, 2018 12:13 am
I have over funded 529s and underfunded retirements

I plan to use non qual distributions from 529s for my early retirement - age 55 - 65
If you intentionally overfunded the 529, can you explain the reason, please? Thanks.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

confusedinvestor
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Re: [529 as part of an overall portfolio]

Post by confusedinvestor » Sun Jun 10, 2018 9:33 pm

No, I didnot intentionally over fund 529s, I made wrong estimates for my twins and got bit lucky with last 6 yrs of bull run (sequence +ve returns)
Lieutenant.Columbo wrote:
Thu Jun 07, 2018 8:46 am
confusedinvestor wrote:
Thu Jun 07, 2018 12:13 am
I have over funded 529s and underfunded retirements

I plan to use non qual distributions from 529s for my early retirement - age 55 - 65
If you intentionally overfunded the 529, can you explain the reason, please? Thanks.

wootwoot
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Re: [529 as part of an overall portfolio]

Post by wootwoot » Sun Jun 10, 2018 11:24 pm

Grt2bOutdoors wrote:
Sun Mar 11, 2018 8:34 pm
sal paradise wrote:
Sun Mar 11, 2018 2:07 pm
[Moved into a stand-alone post --admin LadyGeek]

for folks that use 529's as part of overall portfolio, how's it working out? i view 529's in same light. i will have to pay for kiddos college through cash flow regardless. i view it the same as my hsa. granted, i can tap my hsa without penalty with eligible medical expenses; however, if taxable account is large enough i shouldn't need to withdraw from hsa and can let that money continue to grow tax deferred.
Cash flow is what you get after paying taxes. Payments from a 529 plan are a combination of after-tax contributions and “tax-free” gains, if you structure it properly. Nope, cash flow is the most costly method of paying for school after using educational loans.
What about 529 plans that save you on taxes? I only contribute up to the maximum tax break.

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