529 Question/Advice

[Krimler]

I have two younger kids, ages 7 and 5, that will hopefully be attending state universities (Virginia) beginning in the fall of 2036 and 2038. I currently have $118,006 saved in child #1's 529 and $77,356 for child #2. I know the amounts for each do not matter since these are transferrable. Both accounts are 100% invested in Vanguard's Total Stock Market Fund.

My questions are as follows:

How can I determine the cost of college this far out in the future? I know there are calculators, but there are questions to which I do not know the answer. For example, the annual increase in tuition beginning now.

Any suggestions on diversification since they are both 100% in stocks right now?

Appreciate everyone's help!

[djplourd59]

If change to a VA 529 account, they have a tuition track portfolio that tracks the average tuition growth across Virginia’s colleges and universities. Your savings will grow at the same rate as annual tuition increases.https://www.virginia529.com/invest/tuition-track/.

[Parkinglotracer]

https://www.usnews.com/education/best-c ... iversities

Congrats on your planning. Your kids are lucky to have you as their parent.

I’d make my best guess

Say college costs will increase 6% from what they are today. I’d move 25% of each child’s 529 to a mm fund 3 years before their college school year will start. Say at ages 15, 16, 17, and 18 so you don’t have to worry about the market ups and downs while paying fir their college.

Today I would take an occasional vacation to visit the Naval Academy in Annapolis and the Air Force Academy in Colorado Springs for a youth sports camp or attend a football game. I would see if my kids had an interest in the sea or flying and serving one’s country as they got older. If so I would encourage them to learn to sail or fly. I would see if they might get fired up about how rewarding it would be to fly the F-35 someday or captain a ship or be an astronaut. If they went to school there it would pay for their college and they could use their 529 plan to jump start their military retirement at age 45. It worked for me.

[Kagord]

There's another variable, taking advantage of AP/IB and HS junior/senior university attendance programs, you can shave off 1-2 years of tuition fairly easily now for those ones that are motivated (and if they choose undergraduate schools that have good transfer policies). When I went to HS, I was taking auto/wood/metal shop, lol.

[aristotelian]

Make a conservative guess and use cash flow for the rest. Keep in mind your kids may not even go to college, or they could get scholarships. Plus giving them some skin in the game is completely reasonable. IMO, you already have plenty saved in the 529.

[JVT]

I have 8 and 2, planning to cover in Virginia in state costs with any excess rolling to either their kids or Roth IRA contributions and any under run being covered by cash flow. To your question, I have been using Virginia Tech's current tuition as my marker - my wife and I went there and while it is not the most expensive state school it is higher for Virginia in state. Fully loaded VT Tuition, room and board, engineering fee, and meal plan comes to ~35k per year right now. Since I could basically cover 8's tuition now (138K) I view that as meeting my marker, I am no longer contributing to it and have started shifting it to a slightly more conservative glide path with the hope to stay above tuition inflation. 2's (66k) is still 100% stock.

Some of it also depends how you look at it, with the strong desire and personally feeling an obligation to pay tuition in full I look at these costs no different than any other debt - tuition inflation is the interest rate and the balloon payment comes due when they matriculate. With no debt other than a 1.99% 15 year on my house and retirement accounts in a good state, tuition is the debt I am currently tackling.

One of the other posters mentioned scholarships, my understanding is that you can withdraw an amount from the 529 equal to the amount of the scholarship without the 10% penalty, so in that case it models as after tax contributions with tax deferred gains.

[cmr79]

We have two elementary school age kids and are planning to save enough in 529s to pay full sticker price at the most expensive state school in our state. I'm using a college tuition inflation that is 1% more than my general inflation projection but less than my expected stock returns, and right now the accounts are invested 100% in stocks. When we hit the number that I'm projecting them to need under those assumptions, hopefully in the next couple of years with continued contributions, we will either stop contributing and shift the accounts into much safer investments or potentially re-evaluate our college savings plan based on more information about our kids' academic projections at that point...if we save more in 529s, though, we will be opening new accounts to be able to withdraw from the older, higher-gain accounts for qualified expenses first and then have the newer, lower gain accounts to either withdraw from second or to pull out with fewer penalties if the kids end up going to cheaper colleges anyways.

[FrugalFed]

We have two elementary school age kids and are planning to save enough in 529s to pay full sticker price at the most expensive state school in our state.

Ditto, this is my target as well. I am a VA tax resident and have kids the exact same age as the OP. We are targeting UVa tuition. We have 120k for each kid as of now and, if anything, have a concern that could be too much after 11 years of growth. The amount OP has saved up to now seems close to the point where one should consider putting that money in taxable (which we did when we hit 100k per kid).

[Redlee]

Regarding asset allocation, the standard advice is that as the time horizon gets shorter the funds should be more conservatively invested. But how badly you need the funds is a factor. If you have a big enough portfolio, it makes more sense to leave it in an aggressive allocation, as long as you are OK making up any shortfall resulting from a crash from the rest of your portfolio. At least that is what I am doing--and I'm happy to hear discussion on whether this is a good idea or not.