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How are you managing your 529

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  • Avatar chrisg202 
    Participant
    Status: Physician
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    Joined: 01/16/2016

    I recently opened a 529 educational saving account for our kid (2 years old)

    After a lot of research and having no state tax break, I chose “Utah educational saving plan”, and I picked the aged based aggressive domestic package, as we can tolerate the risk for the next few years.

    I was wondering what the WCI doing… how are you investing your money inside those 529 accounts and whether I should change my strategy or not?

     

    #39724 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
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    Joined: 06/24/2016

    I think he uses UT both because it’s a good plan for its fees and indexing and because (I think) he gets a state tax break for it. UT’s fees are around 0.2% or less, which is very good for 529s.

    If you get a state tax break, you should probably choose that one since the tax break is probably more than another plan might save you in fees.

    You can choose Fidelity’s MA plan or Vanguard’s NV plan if you want to manage it yourself for lower fees and if you’re in a state that doesn’t have a tax break.

    Here’s a brief rundown of Morningstar’s ratings for 529s for 2016 (notice UT at the top): http://news.morningstar.com/articlenet/article.aspx?id=775806

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #39729 Reply
    Avatar TheGipper 
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    Status: Physician
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    Joined: 01/20/2016

    Agree. My favs if state tax break not a deciding factor:

    MA Fidelity (lowest cost index funds) > NY (lowest cost Vanguard funds) > UT (only slightly higher cost if you want DFA funds or more customization)

    529 funding and asset allocation is more of a personal choice and depends on your tax bracket, job stability, number of kids, and overall goals.

    I favor trying to frontload them, funding them up to 50%-75% of anticipated needs, and keeping all equities until the last 3-5 years. When college comes, you can be flexible with funding from 529, cash flow, or taxable safe assets depending on how the market is doing. No real wrong answer. You’ll have to be more conservative with 529 AA at the end if you don’t have younger kids to transfer unused funds to it don’t have other funding options. Age based target funds work OK if you don’t want to deal with the hassle.

    #39733 Reply
    Vagabond MD Vagabond MD 
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    Status: Physician
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    Joined: 01/21/2016

    I contributed monthly (and still do) for my 18 and 15 year olds. I started at 100% equity, and as the children have aged closer to college, I have cut the equity allocation. My son’s plan is currently about 15% in equity and my daughter 30%. Many here find that to be too conservative. I intend to use the money for college, so I want it to be there when they get there. I have a very vivid recollection of one of my running friends lamenting that when his daughter finally reached college age, 8 or 9 years ago, the money he expected to use to pay for college, invested in the program’s age-based recommended allocation, had been lost in the recent market downturn, so he had to cash flow more than he expected.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #39734 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1546
    Joined: 01/08/2016

    Agree with vagabond. I have ours in the vanguard aggressive but it isnt very aggressive in actuality. I would rather cash flow underfunding rather than cash flow because my 529 has lost half its value. All that said, with the amount I have frontloaded, I anticipate generational use. Or daddy’s archery classes in Mongolia, Spanish course in Cuba, diving education in Fiji, etc.

    #39736 Reply
    Avatar BurnedoutDoc 
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    Status: Physician
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    Joined: 11/21/2016

    Switched to ny vanguard age based aggressive at age 11 for older child.  It gets conservative pretty quickly in the next 5-7 years, only 25% stocks at age 16.  I am not a big fan of age based retirement funds, but I think for 529 it can be a smart move. You only have potentially 4 years to spend the money so no time to ride out a market downturn, unlike retirement money that you are spending over 40+ years.

    #39739 Reply
    PhysicianOnFIRE PhysicianOnFIRE 
    Moderator
    Status: Physician
    Posts: 1516
    Joined: 01/08/2016

    Our 529 Plans for our boys (now 6 & 8) are invested in the 100% Global Equity fund (70 / 30 US / Int’l).

    When the recipients are closer to college age, it might be a great idea to include them in the decision-making as to how the money is invested. Show them this is how much you have. Use it how you see fit (public v. private) and invest it in a manner that you’re comfortable with. It would lead to many good money conversations at an important time.

    40-something anesthesiologist and personal finance blogger @ https://physicianonfire.com [Part of the WCI Network] Find me on Twitter: @physicianonfire

    FIRE. Financial Independence. Retire Early.

    #39740 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1808
    Joined: 01/15/2017

    Age based plans to KIS.

    If you want to keep aggressive but lazy on the balancing — choose a later college age date accordingly.

     

    #39752 Reply
    Dreamgiver Dreamgiver 
    Participant
    Status: Physician
    Posts: 755
    Joined: 03/09/2017

    I have the same age-based aggressive plan as the OP with the Utah 529. I am a Utah resident so I get a 5% state tax credit up to $190 so I contribute $3800 a year to take full advantage of the credit.

    #39758 Reply
    Avatar MichaelB 
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    Status: Physician
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    Joined: 02/15/2016
    medical school scholarship sponsor

    I have the NY plan, with one kid in college and two in HS now. I have been very happy with it.

    I still believe in the mantra “keep no money in stocks that you will need in the next 5 years”. So, I had my kids’ 529s 100% in stock until they were about 4-5 years from college, then I shifted enough to cover 1 year of school into short term bonds/cash. The following year I did the same, and so on. So, by the time they start college they would have all 4 years worth of expenses in cash/short term bonds.

    If you don’t want to mess with it, the aggressive age based option probably will give you a similar result. Check the specific investment breakdown of your plan.

    #39794 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
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    Joined: 05/13/2011

    NY, NV, and UT all great plans if your state plan doesn’t give you any benefit.

    I invest my 529s very aggressively. They’re 50% US Small Value (half in the Vanguard fund, half in the DFA fund as they won’t let you put more than 25% in either of those risky funds. The other 50% is in TISM.

    3 Reasons Why You Can Take More Risk with a 529

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #39811 Reply
    Liked by chrisg202
    Avatar chrisg202 
    Participant
    Status: Physician
    Posts: 58
    Joined: 01/16/2016

    Do you mind clarifying why you chose the customized plan over the age-based one? Thx

    #39812 Reply
    The White Coat Investor The White Coat Investor 
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    Earnest refinancing bonus

    Do you mind clarifying why you chose the customized plan over the age-based one? Thx

    Click to expand…

    I wanted to be more aggressive than the age based ones and I wanted to stay aggressive longer. I plan to hold that allocation right into the college years. There’s a good chance some of that money won’t be spent before the kids are 26 if they choose grad/professional school.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #39814 Reply
    Liked by chrisg202
    Avatar chrisg202 
    Participant
    Status: Physician
    Posts: 58
    Joined: 01/16/2016

    Ok… i’m trying to learn something here please as an intern 🙂
    Reviewing the UT 529 website; their “age based aggressive domestic plan” invests in VG TSMI which had a 3 years return of 9.75%; while both VG and DFA small value had less return over 3 years (9.58% & 6.66%) and come with higher expenses. Why to carry more risk and expenses if there is no much difference in return? Thanks

    #39827 Reply
    Dr. Mom Dr. Mom 
    Participant
    Status: Physician
    Posts: 574
    Joined: 02/27/2017

    We’ve been using 529’s for over 12 years now.  With my daughter’s I played around and customized. She graduated and is working now.  With my son’s I used an age based plan chosen by my desired risk not his college entry date. He is now in med school. Their accounts performed the same over that time frame.  So with our third child, I am back to age based because the time I took to customize didn’t pay off and I’d rather use my time in more fruitful endeavors.  We also stayed very aggressive in allocation because as they neared college age we invested separately in a money market fund outside of the 529 because you will have expenses in college that are not considered qualified and will cause penalties if withdrawing from the 529.  The outside money market funds decreased the overall risk of the aggressive 529 allocation and allowed for tactical withdrawals.

    #39829 Reply

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