529 asset allocation

[s2km]

I am doing some planning for our 529s for our 2 children (4 and 1). We currently are contributing the limit to get our state deduction.  I am considering front-loading this year and we are able to carry over the deductions for future years.

Our state provides the age-based portfolios at ok expense ratios (around .3-.4).    It also provides various index funds (exp ratios 0.3-.8) for those that want to have more control.   Currently, I am doing 100% equities in an S&P fund and planned on keeping it that way until college as that was the lowest ER.  I know it's much more risk esp if the market takes a downturn right before college- so I was wondering what others allocations are?   Thanks

[jfoxcpacfp]

s2km wrote:

I am doing some planning for our 529s for our 2 children (4 and 1). We currently are contributing the limit to get our state deduction.  I am considering front-loading this year and we are able to carry over the deductions for future years.

Our state provides the age-based portfolios at ok expense ratios (around .3-.4).    It also provides various index funds (exp ratios 0.3-.8) for those that want to have more control.   Currently, I am doing 100% equities in an S&P fund and planned on keeping it that way until college as that was the lowest ER.  I know it’s much more risk esp if the market takes a downturn right before college- so I was wondering what others allocations are?   Thanks

Click to expand...

You can do that as long as you taper off beginning 5 years before college.

• Age 13 - liquidate enough for 1st year of college


• Age 14 - liquidate for year 2


• and so forth

Even if the market takes a downturn before the 1st year, just stick to the plan.

[MichaelB]

I agree completely with Johanna- that is basically the way we did it. The only thing we did differently with our oldest was to leave the money fully invested until 1-2 years before college, as we had the ability to cash flow college if the market were to take a big hit right before.

If that had happened we would have left it invested and added to it for our younger kids, rather than withdrawing during a big downturn. Luckily we didn't have to worry about it.

With the younger 2 kids, we started moving money to conservative investments 5 years out as Johanna outlined.

[ENT Doc]

Planning on staying aggressive - all stocks.  Will be willing to cash flow *some* of the funds.  Not opposed to requiring loans if they completely defy me and go to some top-notch, high-price, low-value school.  Theoretically infinite time horizon with the ability to gift down generations and relieve my kids of future cash flow issues related to funding their own kids' college and graduate school expenses.  And so on.  Nothing like gifting tax-free growth rather than cash.

[PhysicianOnFIRE]

My current plan is to remain aggressive like @ENTDoc. I'm in a Global Equity plan that's 70% US / 30% int'l. It will be at least 10 years before we would be touching the funds, so I could change my mind, but I don't anticipate dialing back for safety. I'll be happy to let it ride.

[Muaddib]

piggybacking this thread

 

Indiana's 529 has state tax credit 20% up to $5000 invested.

age based plans use Vanguard total stock market and international as well as vanguard total bond and international bond and Loomis Sayles Strategic Alpha Fund

basically

85/15 stocks/bond at ages 0-3,

75/25 ages 4-7

60/40 8/11

45/55 12/13

35/65  14/15

25/75  16/17

15/85    18

 

age based is all about ER 0.40-0.45%

 

you can  individualized - US equities Vanguard total stock market is 0.20%

 

only international option is Dodge and Cox international with ER of 0.80%

to be aggressive is it worth doing international allocation or just go 100% of the VG total stock market

 

[VagabondMD]

I employ a three-pronged approach, with a 529, a UTMA, and cash flow. Of the savings allocated to each child, the dollar amounts are roughly split 60:40, 529:UTMA. The 529 is glidepathed over time. My 18 year old son starting college in the fall is at 10% equities, and my 15 year old freshman is 25% equities.

The UTMA accounts for both kids are 100% equities and ideally won't be used for college but for a last resort. If things work as planned, the UTMAs will be used for starting in life (downpayment on house, grad school, business start up or moving expenses, etc.)

With strong income over the last twelve months, we plan to cash flow my son's freshman year, and his 529 should comfortably cover years 2-4. His year 4 is my daughter's year 1 and our planned first year of dual retirement, so it feels good to get that all squared away.

[FIREshrink]

ENT Doc wrote:

Planning on staying aggressive – all stocks.  Will be willing to cash flow *some* of the funds.  Not opposed to requiring loans if they completely defy me and go to some top-notch, high-price, low-value school.  Theoretically infinite time horizon with the ability to gift down generations and relieve my kids of future cash flow issues related to funding their own kids’ college and graduate school expenses.  And so on.  Nothing like gifting tax-free growth rather than cash.

Click to expand...

this is about what we do. We are 100% stocks, our kids are 7 and 10. We have enough saved for 15 years of tuition, room, and board at our flagship state U. We aren't adding any more money. The bottom line is we can afford to take a lot of risk. If stocks take a nosedive we will cash flow the difference. If we oversave they can use for grad school or we will help out nieces, nephews, or ourselves in retirement, or future grandchildren. We will probably dial down the risk when they begin high school but not by a lot. Remember the 529s are only part of our total portfolio and represent only a portion of total money available for education, the remainder being from cash flow or taxable accounts.

[jfoxcpacfp]

FIREshrink wrote:

ENT Doc wrote:

Planning on staying aggressive – all stocks.  Will be willing to cash flow *some* of the funds.  Not opposed to requiring loans if they completely defy me and go to some top-notch, high-price, low-value school.  Theoretically infinite time horizon with the ability to gift down generations and relieve my kids of future cash flow issues related to funding their own kids’ college and graduate school expenses.  And so on.  Nothing like gifting tax-free growth rather than cash.

Click to expand…

this is about what we do. We are 100% stocks, our kids are 7 and 10. We have enough saved for 15 years of tuition, room, and board at our flagship state U. We aren’t adding any more money. The bottom line is we can afford to take a lot of risk. If stocks take a nosedive we will cash flow the difference. If we oversave they can use for grad school or we will help out nieces, nephews, or ourselves in retirement, or future grandchildren. We will probably dial down the risk when they begin high school but not by a lot. Remember the 529s are only part of our total portfolio and represent only a portion of total money available for education, the remainder being from cash flow or taxable accounts.

Click to expand...

As long as s2km has other resources to fund college (which was not what s/he indicated) if the market takes an untimely nosedive lasting a couple of years, I completely agree (not with stocks, but with equity ETF/mutual funds). If s2km has no safety net, otoh, it would be highly risky to bet on the market in the short term leading right up to freshman year.

[TheGipper]

My thoughts:

1). For most (i.e. not people on this forum or finance buffs), a low cost index age based target date fund will work best. Will prevent forgetting to adjust as college nears.

2). For those who can cash flow or have younger kids to transfer excess funds to, consider staying aggressive as long as you can tolerate. The whole point of 529s is the tax free growth which you have no chance of realizing in short term bonds or money market funds. Remember you are giving up the flexibility of a taxable account for this benefit.

3). Maybe the best solution for many on this forum who can't completely cash flow, don't have younger kids to pass excess funds, and don't want to carryover funds for grad school or bequests, is to hold equity and stable value funds separately in the 529, starting when your child reaches 15. When they enter college if the market is way down, withdraw from stable funds, otherwise withdraw from equity funds.

[Rwinus97]

Hello, I have a question and would appreciate your assistance. I have a child and have been making $K monthly contribution to 529 for the past 2 yr. And now I have been thinking of making a front load contribution of $70K this year. Can I still make front load contribution at this time? Do I need to make that contribution at one time or can I split it up throughout the year? Thanks.

[jfoxcpacfp]

Rwinus97 wrote:

Hello, I have a question and would appreciate your assistance. I have a child and have been making $K monthly contribution to 529 for the past 2 yr. And now I have been thinking of making a front load contribution of $70K this year. Can I still make front load contribution at this time? Do I need to make that contribution at one time or can I split it up throughout the year? Thanks.

Click to expand...

Yes, you can. You can make the contribution all at one time or in a series of contributions. Your spouse should join in the gift since the $70k is supposed to include all gifted amounts over this and the next 5 years (Christmas, birthday, the $1k you've already contributed for this year and so forth). Since you and your spouse can gift a total of $140k, that gives you a cushion.

[Sneezy]

I am going/went (Son finishing 2nd year in college, daughter 2nd year in high school) the target date fund route

I considered being more aggressive but figured this money was targeted to pay for college so I didn't want to risk a big market correction right before.

Would currently be ahead if I had stayed all stock, but not sad about it

I wonder how others decided when to stop contributing?

[retinadoc]

TheGipper wrote:

My thoughts:

1). For most (i.e. not people on this forum or finance buffs), a low cost index age based target date fund will work best. Will prevent forgetting to adjust as college nears.

2). For those who can cash flow or have younger kids to transfer excess funds to, consider staying aggressive as long as you can tolerate. The whole point of 529s is the tax free growth which you have no chance of realizing in short term bonds or money market funds. Remember you are giving up the flexibility of a taxable account for this benefit.

3). Maybe the best solution for many on this forum who can’t completely cash flow, don’t have younger kids to pass excess funds, and don’t want to carryover funds for grad school or bequests, is to hold equity and stable value funds separately in the 529, starting when your child reaches 15. When they enter college if the market is way down, withdraw from stable funds, otherwise withdraw from equity funds.

Click to expand...

I like your point #2. I am at least 18 years away from needing to fund a college education (i.e. no kids), but I think 100% equities is the way to go, since I will likely be able to cash flow college in worst case scenario. Any extra funds can be use for grandkids or for dad's midlife crisis JD or PhD.

[Shamwow]

My kids are 9, 7 and 1.

I'm currently not funding enough to pay for all of college, but am 100% stocks and plan to stay there for the foreseeable future.  Plan to be debt free including mortgage right around when oldest gets to college, that should free up a lot of cash flow...

If downturn occurs when first one gets there, I have 8 years to wait for a recovery!