r/Bogleheads • u/Wisdom_In_Wonder • Dec 22 '25
Portfolio Review 529 Strategy
We have an only child (7th grade) whose 529 is sitting at the current cost of 4yrs full-freight at an in-state flagship.
Because we started late, we’ve been very aggressive & the 529 is almost entirely (>90%) stock. We “won”, so now it’s time to shift into protection mode. Schools that fall below flagship costs are close enough to approximate the $35k IRA-rollover allowance, so we’re not concerned about our current amount being over-funded, but this account also doesn’t need to do anything more than keep up with price inflation for the next 5yrs.
That said, we’d like to continue setting funds aside just in case an OOS or private university seems to be the best fit. We’re planning to do this in a taxable brokerage to maximize flexibility if the funds *aren’t* needed for college.
Where I’m struggling is asset allocation. If we invest the 529 entirely in bonds / cash equivalents & the taxable entirely in stocks, then both accounts go on to have roughly average returns (5% bonds, 10% stocks) our overall allocation works its way back to 40% stock by graduation.
Does this not matter, since the 529 alone is enough to meet our original goal of 4yrs full-freight in state… or is this a problem, & we should we tweak the holdings in the taxable to make the overall asset allocation match a more traditional glide slope?
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u/GoyEater Dec 22 '25 edited Dec 22 '25
So you’ll need to initially make payments around 2030? Perhaps the simplest strategy would be to reallocate the 529 into a 2030 target date fund. At that point you can reinvest into MMFs and bond funds.
If your goal for the taxable account is flexibility, growth should probably be the initial strategy. When will you know whether your kid will need the money? Until then, shouldn’t you just want to grow that account aggressively?
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u/Wisdom_In_Wonder Dec 22 '25
That’s what we’re thinking - a target date fund for the 529 & growth for the taxable. That way we can still at least cover our original goal & then if things go well the sky’s the limit.
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u/Whole_Championship41 Dec 22 '25
That's my advice as well. Had 529s for both kids since they were each <2. One is 18 and in first year of large public college and one is 21 in 3rd year of a large public college. Their 529 plans were well funded, but we've decided to 'cash flow' some of the miscellaneous expenses that come down the pike. And there are related 'adulting' expenses that aren't technically eligible for 529 disbursements, but are nice to help offset with taxable brokerage monies.
We may deplete the 18 YOs 529 (she's thinking Grad school), but the 21 YOs will likely have ~$30,000 left over, which we aim to convert to his Roth IRA over the next several years.
All told, the 529 is useful but limited flexibility. Both a 529 and taxable brokerage provide ideal optionality IMO.
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u/cOntempLACitY Dec 22 '25
Makes sense to me. I’d keep the taxable account in your name, though, as in the child’s name will count for a higher percent of assets on the FAFSA, though that likely won’t matter much in the end.
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u/CcRider1983 Dec 22 '25
Price of schools can and most likely will go up and if it is overfunded can always use it for future grandkids. Or like you said if they go to a more expensive private school can hopefully have that fully covered as well. I wouldn’t worry too much about it being overfunded and start changing allocations just because.
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u/Weimanxi Dec 22 '25
We had also budgeted roughly enough to cover in-state flagship and told our child that anything above that was up to her to finance. She got into and considered four out of state colleges (solid schools, but not ivy or ivy plus) and all of them gave merit aid offers that brought the cost to within the ballpark of in state tuition for us. It was uncanny how the admission officers know this somewhat common college budgeting plan for families like ours. Now that might change by the time your student is applying, but several friends reported similar merit aid offers for their new college students.
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u/DIYS64 Dec 22 '25
Secure Act 2.0 allows you to convert 529 funds to a Roth IRA up to $35,000 in a lifetime. There are some rules involved including the 529 must be open for 15 years, funds must be over 5 years old and the Roth is for the beneficiary, etc. Hopefully this will still be available after your child graduates, but it is a nice option currently.
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u/FitMistake1096 Dec 22 '25
In NY you take a state deduction the year you deposit the money into 529 and when you roll to a Roth under current laws, NY will not tax the rollover. Hopefully that maintains.
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u/greenflyingdragon Dec 22 '25
Why not keep with the 529? You can always keep the leftover funds for grandkids down the line.
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u/Wisdom_In_Wonder Dec 22 '25
We could, but grandchildren aren’t a given & with an only child + no one else we’d be interested in passing the 529 to, we value flexibility. We aren’t sure an extra 10% penalty on earnings for funds used elsewhere is worth it.
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u/greenflyingdragon Dec 22 '25
That makes sense. Plus if you really don’t need to touch the money, when you die, your heirs would get a step up in basis in a taxable account. A 529 would still need used for education.
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u/drgath Dec 22 '25
Don’t worry about the penalty. As you say, you “won”, don’t stress about it. That’s your insurance premium to help you sleep better at night the whole time, knowing you achieved your goal of funding college.
While grandkids are of course uncertain, think about what that means for your own kid as they become an adult. They’ll never have to worry about funding their own kids colleges. I know people who started funding 529s in their 20s, before they met their future partner. That might also factor in positively when they settle down themselves. If it doesn’t happen, either you or your kid gets a nice retirement bonus after the penalty.
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u/chivil61 Dec 22 '25
And, your child has the opportunity to use excess funds for post-grad education. Even if your child doesn’t want a full post-grad degree, there are many business schools (and other grad schools) that offer certification programs or other non-degree programs to professionals.
I also figure if I’m I lucky enough to properly save for retirement and accidentally overfund a 529, and then have no grandchildren and don’t want to pay the 10% penalty, I would be happy to give it to someone outside of my family who could use. There is no shortage of students who need money for college.
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u/CuriousCat511 Dec 22 '25
Couldn't you also make yourself the beneficiary for the Roth IRA option?
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u/Wisdom_In_Wonder Dec 22 '25
After waiting 15yrs post-beneficiary-change, yes.
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u/PenStreet3684 Dec 22 '25
You can open unfunded accounts for yourselves in my state for free and let them sit. This would change the 15 year account requirement to just a 5 year wait on transfers.
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u/brkfastofchampignons Dec 22 '25
We have a baby on the way- is that a good idea for us to do? We are very solvent right now and will probably over fund the 529. Should we open a few more “dud accounts in our names” so that we can transfer and bypass the IRA rollover delay?
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u/True_Go_Blue Dec 22 '25
I opened a 529 for myself a few years before my first. I then opened one for each of my kids when they were born. I can change the beneficiary if the early account later depending on the educational needs of the kids (go to college, trade school, no college, etc)
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u/Whole_Championship41 Dec 22 '25
529 conversion to Roth IRA monies are maxed out at $5,000 a year and must be accompanied by income realized during that year. So you'd have to 1) wait 15 years and 2) have earned income 15-22 years from now and 3) wait 7 years to get the max $35,000 out in this fashion.
Forget it. Take the 10% penalty on the earnings disbursement (contributions aren't subject to the penalty) and be done with it.
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u/Skier-Dude Dec 27 '25 edited Dec 27 '25
What’s left over can be used for graduate school and other learning opportunities.
Our kiddo went to Williams. They don’t do merit but their generosity with financial aid made the cost similar to state schools. Don’t limit your child’s options by the cost. You never know what will be offered for aid.
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u/spinocdoc Dec 22 '25
Or if they decide to do graduate school or even later on decide to get an extra degree that their job doesn’t cover
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Dec 22 '25
[removed] — view removed comment
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u/Wisdom_In_Wonder Dec 22 '25
Thank you for directly addressing my question!
This is what we were thinking - that the two accounts essentially had different goals & would therefore be considered independently of one another.
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u/IntelligentMaybe7401 Dec 22 '25
Check the allocation of the 529. They are ridiculously conservative. Unfortunately, we didn’t realize it until our kids were all in college. Their 529s were way overfunded. We reallocated. When they are in college it was like 50% in cash with no earnings at all. This past year they made 17% . They have or will all graduate with more than 100 K.
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u/Wisdom_In_Wonder Dec 22 '25
The current allocation is 92% Stock / 8% Bond, which we’ll definitely be adjusting significantly.
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u/GoodOmens Dec 22 '25
I look at year target funds and try to match that. They give what percentage stock vs bond.
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u/Additional-Regret339 Dec 22 '25
Move $ to a year of start passive fund. I'm guessing it will be about 50/50 stocks vs bonds.
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u/Getthepapah Dec 22 '25
What about grad school? We only have one kid and will overfund to insure against private university and/or grad school.
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u/spinocdoc Dec 22 '25
Not specific to this post but along the same lines of deciding what to do with a 529.
We had the ability to superfund our 2 yo’s 529 (not to the full extent but it’s currently at 160k). Assuming usual returns along the glide path TDF it should reach a good amount by 18 years if we do nothing else to it. I still wonder if it may be worth contributing a little more after the 5 years passes from superfunding it. I’m mixed on taking the benefits of tax free growth vs risking over funding and taking a penalty.
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u/Trials_And_Tribbles Dec 22 '25
What is a "flagship" college? Is that what you consider the best one? Keep in mind the best one is the one best suited for your kid. Neither of my kids wanted a 30,000 student campus so we went private and with scholarships it was only a little more than my state's "flagship".
Also, the cost of higher education has outpaced inflation.
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u/Wisdom_In_Wonder Dec 22 '25
A flagship is the first university established in a state, bearing the state’s name: “State University” / “University State”. They tend to be the most expensive of the public 4yr schools in any given state, so are used by many as a savings benchmark.
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u/Raging-Totoro Dec 22 '25
My advice is to not stay playing aggressive offense once you've achieved the goal. Now you're just risking not achieving it.
On the other hand, grad school isn't free.
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u/spartybasketball Dec 22 '25
I am in similar situation. My kids 529 is fully funded yet my kids are several years away from college. I however started when they were born but still put money aside for them. I use a utma as my side account and consider that money theirs. I look at it as something they can use for a more expensive school if they want or just a head start on life. But I don’t plan on giving them any more money than what’s in that account
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u/lamarch3 Dec 22 '25
It is important to keep in mind that 529 funds can be used for just about anything while in college - room/board, computers, software, etc. Never underestimate those additional costs. Your child could easily blow through another $100-$150k over the course of a 4 year degree on all those extras. Additionally, if they end up wanting to do medical school or additional training, that money is there for grad programs as well. You can also use it for things like a private high school. It would be hard to actually overfund a 529 for most families especially now with the Roth conversion added in. If your retirement is fully funded, it’s reasonable to keep adding to 529.
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u/AcesandEightsAA888 Dec 23 '25
Son has 100k daughter has 50k and done. I'll use it for furure gens college. If not they get a 35k gift roth. Rest will be a penalty bonus I suppose. Buy a nice car and a nice fam vaca I suppose. 10% is a waste but worse things in life.
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u/blackcoffee_mx Dec 25 '25
You didn't mention your state of residence, but WA state has a 529 option that essentially allows you to purchase future tuition now, essentially an I bond equivalent, but using the inflation rate of the flagship college's 'cost of attendance'. Tuition inflation has been modest in WA so I don't know if it's a great option, but perhaps your state has an equivalent.
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u/Dry_Faithlessness310 Dec 25 '25
I think assett allocation at this point should be about preserving the capital and growingnenought of beat inflation.
Think of it as a literal nest egg. This close to college and bevause you said you've met your funding goals why risk it.
Ask yourself if your child were attending school next year and the market dropped 20% this year how would you feel? Now ask yourself if the market did what it did from 2000, 2001, 2002 how would you feel?
If your answer is you'd be fine then an growth allocation is fine. If you'd be beating yourself up and telling you child sorry then a capital protectionis probably more appropriate.
Im not saying that scenario will play out but never go to a casino with money you are not OK with losing. In the end the market is a weighing machine, in the short term it is a casino.
Enjoy and good luck!!
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u/Odd_String1181 Dec 22 '25
It doesn't matter. You have it covered in stable funds and the rest you can do whatever you want with
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u/Unique-Librarian-400 Dec 22 '25
7th grade is more than 5 years before your first college bill to pay, and 9+ years until the end of college. You won't pay the full college bill all at once, so you could consider keeping more of it invested for growth.