Author Topic: Should I stop investing in my son's dismal 529 college savings fund?  (Read 996 times)

amazinglyandrew

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I was just checking in on my son's 529 fund today and it's looking really sad. He's almost six years old and the average return since we started investing is 4.13%. Over the same period Vanguard's VTMSX seems to have gone up almost 50%. We only put in $100 per month, and it's up to about $7,000 now, so it's not a huge issue for me, but does this even make any sense? Can I possibly be reaping enough tax benefits to make this a better idea than just putting that money in an index fund and taking it out later when he needs it?

Our fund manager is the West Virginia Select 529. They don't seem to have any better options for us to switch to, but I have considered switching to Wisconsin's fund, since I live in Wisconsin and would get some tax benefits for that and also their fund seems to be better managed, with a 6% return over that same period that we have gotten a 4% return. What do you think?

charis

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #1 on: August 15, 2019, 01:49:53 PM »
I was just checking in on my son's 529 fund today and it's looking really sad. He's almost six years old and the average return since we started investing is 4.13%. Over the same period Vanguard's VTMSX seems to have gone up almost 50%. We only put in $100 per month, and it's up to about $7,000 now, so it's not a huge issue for me, but does this even make any sense? Can I possibly be reaping enough tax benefits to make this a better idea than just putting that money in an index fund and taking it out later when he needs it?

Our fund manager is the West Virginia Select 529. They don't seem to have any better options for us to switch to, but I have considered switching to Wisconsin's fund, since I live in Wisconsin and would get some tax benefits for that and also their fund seems to be better managed, with a 6% return over that same period that we have gotten a 4% return. What do you think?

How is the money invested?  My 529 is invested in Vanguard index funds.

nereo

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #2 on: August 15, 2019, 01:53:42 PM »
getting a break on your state taxes is one of the unsung benefits of 529s (though not every state has them).  For that reason alone I'd consider Wisconsin's plan. 

That said, I'll echo Charis' question:  what are you invested *in*? 

amazinglyandrew

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #3 on: August 15, 2019, 02:18:42 PM »
I have the age-based portfolio. As far as I know there is not an option to just choose a Vanguard index fund. The fund I have is 54% DFQTX, 23% DFIEX, 9% DFCEX, 8% DFAPX and a couple other smaller things.

nereo

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #4 on: August 15, 2019, 02:32:25 PM »
I have the age-based portfolio. As far as I know there is not an option to just choose a Vanguard index fund. The fund I have is 54% DFQTX, 23% DFIEX, 9% DFCEX, 8% DFAPX and a couple other smaller things.

Well there's your answer:  you've got roughly 55% US equities, 30% foreign/emerging markets and 10-15% bonds. 
Over the last several years foreign markets overall have not done nearly as well as the US, and holding bonds during bull markets will always diminish returns somewhat (though they are a great help during bear markets).

There's nothing wrong with this allocation per se, and it's entirely possible that for the next 5 years it will do better than the SP500 (which is all US large-cap stocks).

Still - do a tax-analysis to figure out what you could save by investing in your state's plan - it could be significant, or it could be irrelevant, depending on how much you currently pay in taxes.

amazinglyandrew

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #5 on: August 15, 2019, 02:42:34 PM »
Thanks!

secondcor521

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #6 on: August 15, 2019, 04:47:03 PM »
If you look at the savingforcollege.com website, you'll see that West Virginia's plan is crummy and Wisconsin's plan is very good:

https://www.savingforcollege.com/529-plans/west-virginia/smart529-select
https://www.savingforcollege.com/529-plans/wisconsin/edvest

Since you're a resident of Wisconsin, there are also some minor tax benefits; see the second link above for details.

So yeah, if I were in your shoes I would:

1.  Stop contributing to the WV plan.
2.  Start contributing to the WI plan.
3.  Roll over my WV balance into the WI plan.

Depending on how much time and effort I had, I'd also probably see if there was any way of undoing my contributions this year to the WV plan and then re-do them to the WI plan to maximize my state 529 tax deduction for 2019.
« Last Edit: August 15, 2019, 04:48:58 PM by secondcor521 »

I'm a red panda

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Re: Should I stop investing in my son's dismal 529 college savings fund?
« Reply #7 on: August 27, 2019, 11:22:20 AM »
I only contribute the amount I can get a tax deduction in my state for to my children's plans. I find my other investments to be overall better. The goal is just to have money for them for college. It doesn't need to be in the 529.