529 dilemma: transitioning to cash

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Topic Author
catchup
Posts: 251
Joined: Sun Apr 20, 2008 12:15 pm

529 dilemma: transitioning to cash

Post by catchup »

Hello.

My investment plan calls for investing money that I need in 8 years with 75 per cent in my normal aggressive portfolio (70 per cent equities/30 per cent bonds), and 25 percent in cash like instruments. This is a strategy proposed by Swensen.
My 9 year old boy is 9 years out from college. This year I will theoretically move 12.5 percent of his first year of college costs to cash. By next year it will be 12.5 percent of year 2 expenses plus 25 percent of year 1 (8 years out) etc. Actual cost will need to be adjusted for inflation of course.

His 529 is currently the Nevada 529. I live in Maryland where we can put 15k a year into maryland529 for 3 kids with state tax deduction on that amount.

Should I invest in a money market in Maryland for the tax deduction with essentially 0 interest, Nevada 529 money market, or other cash like instruments such as longer term CDs?

Any thoughts? Thanks.
renue74
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Joined: Tue Apr 07, 2015 7:24 pm

Re: 529 dilemma: transitioning to cash

Post by renue74 »

I've invested in the South Carolina 529 plan for 2 kids for the last 12 years. It's a time based account starting with "Aggressive Growth" when they were younger and slowly changing AA to a less risky portfolio.

Setting up your Maryland 529....does it not automatically invest based on the child's age?
Topic Author
catchup
Posts: 251
Joined: Sun Apr 20, 2008 12:15 pm

Re: 529 dilemma: transitioning to cash

Post by catchup »

Thank you for your reply.
I suspect those options exis and probably work out mathematically to be similar to what I am doing.

I have been very pleased with my overall portfolio asset allocations and include 529s in my overall asset allocation.

It is not difficult to invest a portion in cash, and I may use Maryland exclusively for money market tax deductible contributions. My real question is whether it makes sense to have any cash at 0 interest 8 or 9 years from the time of intended use. I suspect your automatic adjustments include a money market component as well. Or should it be invests at higher interest rates in different vehicles, perhaps foregoing the tax deduction. Maryland funds have high fees in general so I would only consider their money market unless otherwise persuaded.
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The529guy
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Re: 529 dilemma: transitioning to cash

Post by The529guy »

Have you considered doing an annual rollover to a plan with better options? MD has no tax deduction recapture for rollovers.

See my previous post here: viewtopic.php?f=1&t=162297#p2436787
Topic Author
catchup
Posts: 251
Joined: Sun Apr 20, 2008 12:15 pm

Re: 529 dilemma: transitioning to cash

Post by catchup »

Thanks for the link. Looks like others share my concerns about Maryland 529 fees.
Still don't know what the best cash like vehicle should be for the portion of the assets that I am putting into my safe bucket, gradually increasing as kids get closer to college according to my plan. If money markets made some interest, wouldn't be an issue.
renue74
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Joined: Tue Apr 07, 2015 7:24 pm

Re: 529 dilemma: transitioning to cash

Post by renue74 »

catchup wrote:Thanks for the link. Looks like others share my concerns about Maryland 529 fees.
Still don't know what the best cash like vehicle should be for the portion of the assets that I am putting into my safe bucket, gradually increasing as kids get closer to college according to my plan. If money markets made some interest, wouldn't be an issue.
I own a small ad agency and pay my kids for work...which usually involves envelope stuffing or something like that. They are W2 employees.

The small amount I pay goes into their Roth IRA....which can also be used for education purposes. That would give you some tax savings and allow you to invest in less tax efficient vehicles such as bond funds.

Even if you can't pay them...if they have some type of employment such as raking leaves for the neighbor or similar "work," you can set up a custodial Roth IRA and contribute.
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The529guy
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Re: 529 dilemma: transitioning to cash

Post by The529guy »

catchup wrote:Thanks for the link. Looks like others share my concerns about Maryland 529 fees.
Still don't know what the best cash like vehicle should be for the portion of the assets that I am putting into my safe bucket, gradually increasing as kids get closer to college according to my plan. If money markets made some interest, wouldn't be an issue.
If you decide to go the route of rollovers, you could potentially consider:
- Virginia plan's high-yield savings accounts (2%+)
- Colorado plan's stable value fund (3%+)
- Nevada/Vanguard plan's TIPS fund
nekrad
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Joined: Fri Feb 27, 2015 1:33 am

Re: 529 dilemma: transitioning to cash

Post by nekrad »

I had assumed that all 529 plans would automatically adjust the risk level based on the beneficiary's age. I've had all my kids money in the Utah plan and it's gradually become less and less invested in the stock market to the point now that my kid is in college and it's pretty much go a flat-line return and I've stopped investing and keep additional savings in cash. I definitely wouldn't be keeping that 529 money in cash 8 or 9 years from when you need it. That seems super conservative.
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