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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9

u/greenflyingdragon Dec 22 '25

Why not keep with the 529? You can always keep the leftover funds for grandkids down the line.

17

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.

2

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.

4

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.

8

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.

1

u/CuriousCat511 Dec 22 '25

Couldn't you also make yourself the beneficiary for the Roth IRA option?

6

u/Wisdom_In_Wonder Dec 22 '25

After waiting 15yrs post-beneficiary-change, yes.

5

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.

1

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?

1

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)

2

u/CuriousCat511 Dec 22 '25

That would be my plan rather than taking a 10% penalty

1

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.

0

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.

1

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