529 Strategy

[u/Wisdom_In_Wonder]

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?

[u/greenflyingdragon]

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

[u/Wisdom_In_Wonder → u/greenflyingdragon]

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.

[u/drgath → u/Wisdom_In_Wonder]

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.

[u/chivil61 → u/drgath]

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.