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parking money in the right spot for 529

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  • parking money in the right spot for 529

    I didn't see a tab for 529 questions/forum (just a suggestion)

    We moved from Cali to Hawaii recently. Our 529 funds for the kids are with scholarshare in Cali being actively managed and getting a decent interest for the past 7 years or so.

    Any reason to switch accounts? neither state offers a tax credit... I am also reading suggestions stating you are better off putting the money in an aggressively allocated taxable account and start liquidating 5 years in advance. Is that taking into account the tax sheltered nature of the 529s? I like to simplify my life and don't mind pseudo-actively managing our finances without micromanaging.

    Side note: We are already maxing everything out from retirement account front for us and are debt free. TIA.

  • #2
    CA offers some of the best, lowest cost passive/indexed 529 options in the country. There is a reason to switch from your actively managed funds to those. All of our 529s assets are passively invested. We have also had very good returns over the last 7 (and 10) years.


    • #3
      I am not sure what you mean by "right spot", but I will give it a shot.

      Since you get no state tax deductions for your 529 contributions, you are free to choose from the best plans. Many in the same situation use Utah or New York plans because of the low expenses and excellent investment choices. You can transfer current assets to one of these and continue with your contributions.

      Morningstar did a thorough analysis of the existing 529 plans late last year:

      Your excellent returns over the last seven years are due to the eight year bull market, which could expire at any moment or continue indefinitely, no one knows. If I had to guess, and as others who are wiser would likely agree, the next eight years will not be as strong as the last eight, but who knows how that will really play out (again, not me).

      My strategy has been to decrease the stock percent and increase the cash/fixed income fraction as the children approach college age. By doing this over the last eight years, I have certainly left some potential returns on the table, but have never been in doubt that the money would be there to fund college. Others here are more aggressive with their 529 portfolios and understand that this could result in a funding shortfall when the child matriculates to college. With regard to educational savings (and to an extent, retirement investments), we do not get to choose the timing of market returns with respect to the when we may require the money.


      • #4
        I have been contributing to 529's for my son and daughter via Nevada's Vanguard College Savings Plan for 11 and 9 years respectively using the individual portfolio's.  Like Vagabond above, I was very aggressive early on (100% equity) and over the last couple of years have contributed to the individual bond portfolio.  There are alot of really good choices out there in state 529 plans.  I would stay away from an adviser sponsored 529's because of the generally sub par returns and high fees relative to other offerings.


        • #5
          My state's 529 is bad and tax breaks non-existent.  My search of current 529 plans showed that for a simple 3-fund portfolio CA is either the best or one of the best states out there.  MI is a close 2nd.  Sure, you can do better if you're in another state and you can get lower rates because of that (RI, LA) or get a tax break, but if your situation is as you stated I don't see any reason to switch.  This assumes you're investing in the low-cost funds.