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529 Age Based Portfolios

TS0104TS0104 1257 replies30 threads Senior Member
Looking for general opinions on the 529 age based portfolios. I've been managing my own for years with the advice of my financial advisor, but for my youngest (age 14) she recommended I may want to look into the age-based to manage risk easier. We've had amazing returns so far for all the kids based on her allocation recommendations, and I'm pretty investment-literate, so making yearly or twice yearly allocation adjustments on my own is not hard.

Also I've heard that they tend to shift to about 50% stocks around age 14, is this true? If so, that's way more conservative than we've been in the past. I would call us moderately aggressive investors.

Thanks!
19 replies
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Replies to: 529 Age Based Portfolios

  • hebegebehebegebe 2821 replies39 threads Senior Member
    What may make sense for your retirement portfolio, if that’s 10-20 years into the future, is likely different from what makes sense for a college portfolio that will be withdrawn starting in a few years. The age based portfolios reflect this, shifting to a conservative portfolio near the time that withdrawals start so that the assets don’t suffer a large decrease during a market drop.

    This approach makes sense for many parents. Whether it makes sense for you depends upon your income, the stability of that income, and other assets you can call upon if needed.
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  • tkoparenttkoparent 352 replies7 threads Member
    The age-based allocations vary from plan to plan, so you need to look at the details of the options being offered by whatever plan you are participating in. We have both NY and Utah plans, and they are quite different. Also, even within the age-based allocations, you may have conservative, moderate and aggressive options. In general, I found that the age-based options were OK during some periods but became more conservative than I was comfortable with later on, so we moved back into a self-managed allocation.
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  • MarylandJOEMarylandJOE 194 replies6 threads Junior Member
    The fact is the stock markets have been on fire for many years so making decisions outside of she based portfolios hasn't been hard. Will that continue? Who knows. I've had my plan in age based funds. In the end I missed out on some return but now I'm too close to risk moving it to chase a few extra dollars. The problem is we can't predict the future. If your close I would stay age based as too much stock risk could hurt you if the markets suddenly decide to tank. Just my two cents, and it's worth exactly what you paid for it.
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  • blossomblossom 10245 replies9 threads Senior Member
    I think it depends on the relative strength of your overall financial picture, your health, life insurance, and your age.

    If you'll be in a position to supplement (other assets, cash flow, continue working) then I think keeping a more aggressive plan in place for the 14 year old is fine. Nobody knows how long the market run up is going to last, but you're set for college regardless, then keep your current program.

    If you are totally relying on the 529 for college and couldn't come up with another X grand per year if it falls short, then being more conservative (shifting out of equities) makes sense. And if you are already 62 (to pick a random age) you don't really want to be committing to your current career for the next 8 or 9 years, do you? And you might not be able to anyway..... And of course, life insurance.
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  • TS0104TS0104 1257 replies30 threads Senior Member
    Thanks @blossom that makes perfect sense to look at it that way; this helps a lot.
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  • blossomblossom 10245 replies9 threads Senior Member
    We had a job loss during the youngest kids college years, and although shifting to a more conservative (i.e. cash, and out of equities) 529 plan seemed crazy when we did it, in retrospect, it did what it was supposed to do. Just when we were looking at a reduced cash flow, and trying to be as conservative as possible in terms of spending, we knew we had the college angle pretty secure. Although we tried to reassure the kid "nothing is changing", kids don't actually believe that. And so being somewhat transparent about why we were so confident (at least about college, believe me, we were cutting the other discretionary stuff as quickly as we could) helped the kid focus on academics and not worry about transferring to help ease the burden.
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  • daffodilpetuniadaffodilpetunia 261 replies4 threads Junior Member
    Think about what the impact on you would be if the stock market were to drop sharply (say 20%) when the kid is 16. If you are 50% in stocks, the balance goes down 10%. How much would this impact your ability to pay for college? If you are 25% in stocks, you lose 5%. How does that impact your ability to pay for college? Etc.

    We respect to self-managing vs age-based, I don't think it matters much. If you are very consistent and not likely to forget to rebalance, or to overreact to a short term change, then self-manage. If not, age-based might be better.
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  • Homeschooler14Homeschooler14 147 replies9 threads Junior Member
    If there is no change this November than I would be more aggressive, if it's Biden 50% stocks is about right, if its Sanders I would go down to 25% or maybe even less especially if they take the senate.

    Be careful with a 529, that money can't pay for off campus housing. Well it can, but only as much as what the school says in the "cost of attendance". For example I was looking at a school and they said in their "cost of attendance" that off-campus housing would cost about $1,000 a month, but the only apartments you could get in the area for that were pieces of crap that my parents would never let me live in and I would never want to live in. For a nice updated 1 bedroom it was about $3,000, so the 529 wouldn't cover it.

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  • TS0104TS0104 1257 replies30 threads Senior Member
    Thanks @Homeschooler14 , yes we deal with that housing COA for my older D's off campus housing. (In LA...its tough, but doable). What is frustrating is that houses are renting now and the school doesn't publish their new COA until April!
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  • NhatrangNhatrang 935 replies1 threads Member
    edited February 27
    This makes me wonder, D19 just signed up for a 1 bedroom apartment with her roommate for $3300/month. 1650 each. Are you saying we can’t use 529 for the full bill ?
    edited February 27
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  • RichInPittRichInPitt 2078 replies33 threads Senior Member
    edited February 27
    Any decent 529 will have a prospectus that will show the asset mix over time.

    I get a 50+ page document from Fidelity every year with all of the details for every pre-defined option. You should be able to get one online. I suspect the mix doesn’t vary much by provider.

    EDIT: Found it

    https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/529_NH_fact-kit.pdf

    Page 13.

    4 years to college looks to be 65% Bond and Short-term. Way to conservative for me, so I’ve chosen other options.
    edited February 27
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  • TS0104TS0104 1257 replies30 threads Senior Member
    Thanks @RichInPitt. That is also too conservative for me. This thread has been helpful though, thinking about the entire financial picture with the 529 as one aspect.
    @Nhatrang , the only part that you can use for 529 qualified expenses is up to the amount of the college's published housing plan cost, plus the published cost of a meal plan. We take that amount and send it to D and she uses it for rent and groceries.
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  • politepersonpoliteperson 499 replies4 threads Member
    edited February 27
    I probably wouldn’t do the age based at that age. Equity vs bond allocation is really the biggest issue and it sounds like you’re capable of deciding that yourself. As blossom has mentioned, just consider the big picture. Can you withstand a significant loss in these funds or will it mean dropping out of school. Investment horizon is shorter for college than for retirement, most people will tend to be more conservative unless they won’t have a problem making up any loss from income or other assets.
    edited February 27
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  • Twoin18Twoin18 1951 replies19 threads Senior Member
    TS0104 wrote: »
    @Nhatrang , the only part that you can use for 529 qualified expenses is up to the amount of the college's published housing plan cost, plus the published cost of a meal plan. We take that amount and send it to D and she uses it for rent and groceries.

    @Nhatrang I don’t think that is precisely correct. UC Berkeley publishes a student budget which differs depending on where you live (see https://financialaid.berkeley.edu/cost-attendance). I believe you need to apply the relevant amount for your circumstances, ie the limit for an off-campus apartment will be $10868 plus another $4158 for food in 2020-21. That is much lower than the budgeted cost of an on-campus housing plan and meal plan ($17952), although you can withdraw the actual cost if that is higher and you are billed directly by the university. From a 529 perspective, university owned accommodation is therefore treated much more favorably than private accommodation, particularly in a high cost location like Berkeley, because it is so hard to fit within the published budget.

    Splitting food from rent in their published budget makes things more tricky too, because it’s quite hard to spend $4158 on groceries and at least in theory you should track those costs separately (for comparison UCLA’s budget is a single number which remarkably enough is higher than Berkeley’s at $15240 http://www.admission.ucla.edu/Prospect/budget.htm).

    Another area to consider is whether to spread the withdrawal over the 12 months of a lease or just the 10 months at college. We decided to do the latter on the basis that S might sublet in the summer or earn money to pay the rent. Also if he instead stays for summer classes then those costs would be in addition to the published COA. But either way you will have to pay a lot from outside the 529.
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  • NhatrangNhatrang 935 replies1 threads Member
    Twoin18 wrote: »
    TS0104 wrote: »
    @Nhatrang , the only part that you can use for 529 qualified expenses is up to the amount of the college's published housing plan cost, plus the published cost of a meal plan. We take that amount and send it to D and she uses it for rent and groceries.

    @Nhatrang I don’t think that is precisely correct. UC Berkeley publishes a student budget which differs depending on where you live (see https://financialaid.berkeley.edu/cost-attendance). I believe you need to apply the relevant amount for your circumstances, ie the limit for an off-campus apartment will be $10868 plus another $4158 for food in 2020-21. That is much lower than the budgeted cost of an on-campus housing plan and meal plan ($17952), although you can withdraw the actual cost if that is higher and you are billed directly by the university. From a 529 perspective, university owned accommodation is therefore treated much more favorably than private accommodation, particularly in a high cost location like Berkeley, because it is so hard to fit within the published budget.

    Splitting food from rent in their published budget makes things more tricky too, because it’s quite hard to spend $4158 on groceries and at least in theory you should track those costs separately (for comparison UCLA’s budget is a single number which remarkably enough is higher than Berkeley’s at $15240 http://www.admission.ucla.edu/Prospect/budget.htm).

    Another area to consider is whether to spread the withdrawal over the 12 months of a lease or just the 10 months at college. We decided to do the latter on the basis that S might sublet in the summer or earn money to pay the rent. Also if he instead stays for summer classes then those costs would be in addition to the published COA. But either way you will have to pay a lot from outside the 529.

    Thanks @Twoin18 I had no idea.

    How do we even submit the bills for food? Keep receipts of everything she buys? or just ask for $4158?

    The idea is so strange to me, it's YOUR money but we have to deal with like someone else giving you allowances.

    @Twoin18 you have a son/daughter at Cal? What year? Thanks again!
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  • blossomblossom 10245 replies9 threads Senior Member
    Using a credit card simplifies the bookkeeping- an $80 charge at Stop and Shop is presumably food. Tracking where four twenty dollar bills from the ATM goes is painful.

    This is not a strange concept if you've ever been executor of an estate. A parent dies. You plan a funeral, memorial, whatever. That costs money, which comes out of the estate. 99.5% of the time it's a simple matter of listing those funeral expenses when you do the estate tax filings. But there have been cases where someone has spent half a million dollars on "funeral expenses" in order to whack the estate down to below the taxable level. That gets the IRS really curious about where that half a million went.... A lawyer told me about even more egregious cases- millions of dollars spent "burying" the deceased which actually were subsidies to grandchildren and heirs well in advance of the estate settling. Why wait two years to get your inheritance with a complicated high net worth estate if someone will hand you a quarter of a million dollars to "cover" your costs of getting to grandpa's funeral????

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  • Twoin18Twoin18 1951 replies19 threads Senior Member
    @Nhatrang My S18 chose UCLA instead, but we’re just going through the apartment rental process for next year. My D18 had an apartment this year at Utah and so we dealt with the food issue - basically we just added up all her Trader Joe’s bills from her bank statement and I reimbursed her for that from the 529 (as I mentioned nowhere close to $4000, more like $40 per week).
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  • NhatrangNhatrang 935 replies1 threads Member
    ^^ I wish mine chose UCLA :-)
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