Author Topic: Help me invest in my son's 529 ($5,250)  (Read 3334 times)

tyleriam

  • Stubble
  • **
  • Posts: 116
Help me invest in my son's 529 ($5,250)
« on: March 09, 2015, 03:31:48 PM »
My son is 4.5 years old, will go to college when he is 19 so 2029/30.  I setup and have $5,250 in the Vanguard 529 now I just need to figure out what to put it in.

If I had $6K to meet two minimums I would put half or more in VTSMX and the rest in VGENX.  Because I don't have enough to hit two min $3K initial investments I am not sure what to do.  I hate the idea of buying right now at a peak but I have to get the money working.  It is more of a concern here in this fund versus my retirement stuff because we are only talking about a 14/15 year window versus retirement which is 30+ for me.

Any other ideas?  Thought?

Thank you in advance for the help and suggestions.

Doulos

  • Stubble
  • **
  • Posts: 116
  • Age: 40
Re: Help me invest in my son's 529 ($5,250)
« Reply #1 on: March 09, 2015, 07:27:53 PM »
I recently started an account for this same kind of thing.
But I was advised against a 529 because of the rules you now must follow on the use of that money.
I would like to hear the opinions of others on if this kind of thing is wise to do at all?

I set up a normal account instead.  This is for 10 children of various ages, who may or may not decide to go to collage.  That makes my situation different; one of the reasons I was advised against a 529 or trust, etc.  With a normal investment account we have the power to use this money as we see fit to pay for education in any state, trade school, or just to help them start their own business.  I did not want to get tied down by the government's definition of what is a good educational expenditure for the children.

As for options; we went with 2 like you mention.  1 growth and 1 aggressive.  In my opinion, 15 years is plenty to time to get aggressive.
Relevant topic; http://www.mrmoneymustache.com/2013/03/28/the-incomparable-advantage-of-having-to-work-for-what-you-get/

rothnroll

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: Help me invest in my son's 529 ($5,250)
« Reply #2 on: March 09, 2015, 07:58:25 PM »
I recently started an account for this same kind of thing.
But I was advised against a 529 because of the rules you now must follow on the use of that money.
I would like to hear the opinions of others on if this kind of thing is wise to do at all?

I set up a normal account instead.  This is for 10 children of various ages, who may or may not decide to go to collage.  That makes my situation different; one of the reasons I was advised against a 529 or trust, etc.  With a normal investment account we have the power to use this money as we see fit to pay for education in any state, trade school, or just to help them start their own business.  I did not want to get tied down by the government's definition of what is a good educational expenditure for the children.

As for options; we went with 2 like you mention.  1 growth and 1 aggressive.  In my opinion, 15 years is plenty to time to get aggressive.
Relevant topic; http://www.mrmoneymustache.com/2013/03/28/the-incomparable-advantage-of-having-to-work-for-what-you-get/
But with the 529 Account, you don't pay taxes on the earnings. Your withdrawls are tax free. 529's have their advantages.

a1smith

  • Bristles
  • ***
  • Posts: 360
  • Location: 44 15.478N, 082 50.088W
Re: Help me invest in my son's 529 ($5,250)
« Reply #3 on: March 09, 2015, 10:05:27 PM »
I'm using 529's and haven't found their qualified educational expense rules to be a problem.  If one child decides to not go to college the money can be transferred to the 529 of one of the other children in the family.  The tax free earnings is a nice benefit.  Also, for me, I get a state tax deduction on most of the contributions (there is a $ limit) but I have to use the in-state 529.  Since it has low fees and reasonable investment choices that wasn't a problem.

One thing you have to keep in mind is that the $4000 you have to spend to qualify for the American Opportunity Tax Credit can't come from a tax-advantaged account like a 529 or Coverdell ESA.  Spend $4000 of after tax money and you get a $2500 tax credit (subject to income limitations, I believe it is $180K for MFJ)

You're doing a great job - starting early!

a1smith

  • Bristles
  • ***
  • Posts: 360
  • Location: 44 15.478N, 082 50.088W
Re: Help me invest in my son's 529 ($5,250)
« Reply #4 on: March 09, 2015, 10:22:17 PM »
In case you haven't seen this:

Can I switch my investments around?

IRS regulations only allow you to exchange money from your current 529 investment options to a different option once per calendar year. (The automatic changes within age-based portfolios don't count.)

However, you can change the investment options for your future contributions anytime you want.


I used the age-based option in our 529's; that way they were on autopilot and the stock/bond allocation was automatically adjusted for me.

a1smith

  • Bristles
  • ***
  • Posts: 360
  • Location: 44 15.478N, 082 50.088W
Re: Help me invest in my son's 529 ($5,250)
« Reply #5 on: March 09, 2015, 10:30:02 PM »
Here's the definition of qualified higher-education expenses from Vanguard's 529 website:

These include room and board, books, supplies, tuition, and other costs at any accredited trade or vocational school, college, or graduate school in the United States or abroad. If you use 529 plan money to pay for qualified expenses, you won't owe taxes or penalties.

So, trade schools qualify and the school doesn't need to be in-state.  In fact, it can be anywhere in the world as long as it is accredited.  However, helping a child start a business will be a non-qualified expense.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3174
Re: Help me invest in my son's 529 ($5,250)
« Reply #6 on: March 09, 2015, 10:34:38 PM »
Traditional IRA funds can also be used tax-free for educational expenses. I'd fill that bucket first (as well as 401k if available) and then do the 529 last.

As for the allocation, most 529s will just do almost all equities for the first 5 or so years, then slowly transition to more and more bonds as the kid ages towards college. You can easily replicate that just by rebalancing once a year. So just put everything in VTSAX for now (in fact I'd keep going on that until you hit admiral status before you buy any bonds at all).

-W

humblefi

  • Stubble
  • **
  • Posts: 107
    • Humble FI
Re: Help me invest in my son's 529 ($5,250)
« Reply #7 on: March 09, 2015, 10:49:45 PM »
Vanguard 529 has age based options...which come with automatic rebalancing....at a cost of course....0.19% last time I saw.
You can choose conservative, moderate and aggressive investment options for any age you choose.

If you do not want the managed option and would like to balance things yourself, the Vanguard asset allocation model may be helpful as a reference.
https://investor.vanguard.com/529-plan/age-based-options

tyleriam

  • Stubble
  • **
  • Posts: 116
Re: Help me invest in my son's 529 ($5,250)
« Reply #8 on: March 10, 2015, 03:25:37 PM »
I don't plan to put all my eggs in the 529 basket.  I am ear marking it for 30-50% of his education expenses, the rest I plan to save seperate.  I also think he should have to contribute to college and I would love it even more if he figured life out early and started a business instead of going to college or a 4 year college maybe.

Part of this for me is that the grandparents want to contribute to a 529.  Also most of this money has come from us downsizing and selling stuff.  The grandparents got into it and gave us stuff to sell on the condition that it went into his college fund.  It has actually been a motivator for getting rid of the clutter that you are on the fence about.  When you think of it in terms of...do I want to keep this or do I want it to be $100 in his college fund?  Sold, gone. 
 

letsdoit

  • Bristles
  • ***
  • Posts: 383
Re: Help me invest in my son's 529 ($5,250)
« Reply #9 on: May 13, 2019, 07:55:11 AM »
does having the investment in parents' name shield it from view as far as FAFSA is concerned?

waltworks

  • Magnum Stache
  • ******
  • Posts: 3174
Re: Help me invest in my son's 529 ($5,250)
« Reply #10 on: May 13, 2019, 09:26:34 AM »
does having the investment in parents' name shield it from view as far as FAFSA is concerned?

I believe that retirement funds are not counted as parental assets for FAFSA. But my kids are 7 and 4, so I haven't done the deep dive into that yet.

-W