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Should we use stock market profits for tuition payment in Sept?

SouthernHopeSouthernHope 2065 replies209 threadsRegistered User Senior Member
I'm trying to think this through clearly and I realize that I'm asking people to predict the future when that can't be done...but tell me what you all think of this > (and it feels odd to talk so openly about finances but, hey, if you can depend on the advice of strangers, who can you turn to?)

In August, I have to pay $24,000 for my kid's first semester in grad school. My initial thought was to take cash in the muni-bonds that were (kind of) set aside for this. But now I’m thinking, Will the stock market dip and will my stock account will go down? So why not take it out of the energetic stock market at its peak. It gained $10,000 in six months which sort of feels like free money. And if the stock market continues to roll, it might replace some of that money withdrawn.

In other words, take from the stock fund, hope it continues to recover, and leave the steady, conservative muni-bonds intact for what’s left for Year Two at grad school (which will be lower-cost...because of research job) and future retirement savings.

Does this make sense?
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Replies to: Should we use stock market profits for tuition payment in Sept?

  • doschicosdoschicos 21113 replies219 threadsRegistered User Senior Member
    Let me get out my crystal ball.... :)

    Don't forget to consider the tax impact on any sale you make on your investments.
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  • ucbalumnusucbalumnus 78229 replies690 threadsRegistered User Senior Member
    Stocks, mutual funds, and other investments may have unrealized capital gains and losses. Be sure to consider the implications for both income taxes and future financial aid calculations if you sell them to realize those capital gains and losses.
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  • bearcatfanbearcatfan 1148 replies12 threadsRegistered User Senior Member
    Another option is to take any profit and let a percentage of your original investment continue to grow (or not).

    At that point you are sort of playing with house money.
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  • bhs1978bhs1978 665 replies12 threadsRegistered User Member
    I have a friend who manages a multi million dollar investment company. She has told me she uses a 3% number for decisions on when and how to university money. When investments go up over 3% she skims the profits and buys from the investments that have gone down.
    By this theory, if your investment has gone up over 3% then use the profits and you will still have your original investment.
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  • bhs1978bhs1978 665 replies12 threadsRegistered User Member
    Should say move money!! I have a bad habit of not proofreading for autocorrect
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  • yourmommayourmomma 1323 replies1 threadsRegistered User Senior Member
    Nothing wrong with taking the profits off the table. I did it. Took all the profits and set aside for college costs. Let the original investment ride. Remember, pigs get slaughtered.
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  • LMK5LMK5 114 replies11 threadsRegistered User Junior Member
    Do you know what your overall cost burden will be over the next 5 years? In my opinion, none of that money should be exposed to stocks. I have put my kids college expenses over the next 4 years into a money market fund within a 529 plan. Yes, it's a conservative strategy, but I can't imagine having a steep college burden ahead of me, and dealing with a 2008-2009 market scenario. Significant drops do tend to happen every 7-8 years, on average.
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  • DadTwoGirlsDadTwoGirls 5506 replies1 threadsRegistered User Senior Member
    edited June 12
    I would be nervous about having money in the stock market that I will need in the next 4 or 5 years. However, even being mostly retired I still leave a significant amount in stock to help deal with inflation in the off chance that I should live another 30 years. I agree with @LMK5 that everything that I need to get my youngest through graduation is in a money market right now. I retired with enough in cash to see both daughters through at least their bachelor's degrees.

    Another issue is that individual stocks tend to be more volatile than the overall stock market.

    Predicting what the 2020 election will do to the stock market is beyond the ability of my personal crystal ball.

    And yes there is the issue that if you sell the stocks, you will realize a gain for tax purposes. This will show up in your FAFSA form next year and well as your tax return. You also might want to file estimated taxes for the quarter that you sell the stock.

    As such I think that you have a good question. However, I don't think that there is any easy answer. A lot more information (which you probably shouldn't tell us) would be needed to even give a reasonable guess.
    edited June 12
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  • noname87noname87 1203 replies20 threadsRegistered User Senior Member
    My suggestion (based on limited experience but a fair amount of reading) is to first take a look at your risk tolerance for all your investments. Each asset class has it's own rsisk and rewards. Try to determine the balance that you feel is acceptable for your goals and risk tolerance. Then rebalance your portfolio as needed. As others stated, you need to factor in taxes but if your portfolio is way out of balance then it will be worth paying the taxes to get it back to where you want it to be.

    In your case, if the recent stock market has cause you to have more exposure to the stock market than you are comfortable with then selling makes sense. On the other hand, you might find that your bond holdings are too conservative and want to sell those to keep your exposure to stocks where it is.

    Trying to guess what the market is going to do usually ends up being an exercise in fustration.
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  • My3DaughtersMy3Daughters 397 replies11 threadsRegistered User Member
    edited June 12
    "In August, I have to pay $24,000 for my kid's first semester in grad school. My initial thought was to take cash in the muni-bonds that were (kind of) set aside for this. But now I’m thinking, Will the stock market dip and will my stock account will go down? So why not take it out of the energetic stock market at its peak. It gained $10,000 in six months which sort of feels like free money. And if the stock market continues to roll, it might replace some of that money withdrawn."

    @SouthernHope That's exact;y what I did, though the stock broker advised against it. He thought we should keep the money in the market, but I thought -- for what? I've lost that much in the past.
    edited June 12
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  • DigitalDadDigitalDad 42 replies1 threadsRegistered User Junior Member
    @SouthernHope "Sell high", right? For me, the current market was "high enough". So I followed your logic too: I "locked in" the gains on some of the portfolio, using it to pay fall tuition, and moving some more into bonds in case there's a dip by the time Spring tuition is due, then leaving the rest in place to benefit in case there are any further gains.
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  • socaldad2002socaldad2002 1430 replies29 threadsRegistered User Senior Member
    @yourmomma "Remember, pigs get slaughtered. " Actually the quote is "Pigs get fat; hogs get slaughtered".

    To the OP, your fed/state long-term capital gains tax could be as much as 25-30% so factor that in but if you have enjoyed some significant gains over the past year, it would seem reasonable to sell and use that money for college tuition. BTW - impressed that you are paying for your kids graduate school. Well done!
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  • RichInPittRichInPitt 907 replies12 threadsRegistered User Member
    The market (S&P500) has gone up 3% ten times this year, so I’m not convinced that’s a very good methodology. And some folks were discussing the inevitable market crash and recession late last year, 20% ago.

    Don’t try to predict or time the market. If you’ve met your investment objectives, exceeded your risk tolerance, and have short-term cash needs, then it’s time to sell. Planning and discipline succeed in the long run. Not a crystal ball.
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  • lookingforwardlookingforward 34107 replies377 threadsRegistered User Senior Member
    The 25-30% figure depends on the tiered taxes, the $ that goes over the benchmark tiers. Depends on the details on your taxes.

    Btw, in my circle, the phrase is Bears go to market, pigs go to slaughter. Meaning, bears get wealthier, over time. Or Cramer says, "Bulls make money, bears make money, pigs get slughtered."

    No matter, the concept remains the same.
    You definitely need to consider tax implications.
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  • theloniusmonktheloniusmonk 2433 replies5 threadsRegistered User Senior Member
    "Does this make sense? "
    It makes a lot of sense, but you absolutely have to consider the tax implications, will the gains count as income (bad) or capital gains (good)? If you've held these more than a year, sell them.
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  • suzyQ7suzyQ7 3964 replies55 threadsRegistered User Senior Member
    Makes total sense. Take your profits, the 10k could disappear for a long while. If you have held the stock long enough for it to be considered long term gains vs short term capital gains, it would be better. But still.
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  • rickle1rickle1 1935 replies17 threadsRegistered User Senior Member
    This assumes you have individual stocks in your portfolio...Using after tax gains to pay for college is a great idea. Using other instruments is also a great idea. It really comes down to risk tolerance and your goals (i.e. what is the purpose of the stock account - easy to let it grow indefinitely but, ultimately, what do you plan on using it for?) If you can't answer that question, you may consider putting a "stop" on some or all of your actual holdings. This way you let it ride to catch upside but automatically sell at a certain threshold when the market turns (or close enough as you actually sell after it passes through the stop price). So you buy in at X, it goes to Y and you want to let that trend continue without it going back to X. You put in a stop and you automatically sell at just a smidge beneath Z. You can always set your Z a little higher to account for the actual sell price which comes after it passes through Z.
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