- they’re with Vanguard btw - they sort of hide it on the PA 529 plan website.
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We left the money in age based options and trusted the professionals to handle the money. This worked out well in our case. Whether this is luck or “the professionals knew what they were doing” might be hard to say, but it might be a bit of both.
One thing that I have eventually figured out: There are a few different ways that inflation can be caused to increase. Some of these will also hit the price of stocks, in addition to the price of gasoline and food and tuition. If you are concerned that political or economic factors might drive up prices, keep in mind that in some cases stocks can sometimes be a hedge against inflation. This might be an argument against “leave it in cash”.
Regardless I think that there are no guarantees (other than death and taxes), but the professionals can judge the risks better than most of us.
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Okay that makes sense - the income portfolio. And yes, we could use the extra money that should accumulate over the next four years for sure. Thank you!
They have income portfolios - but those have stocks and bonds. You want what I put in the quotes - which is a money market fund - in essence, not 100% assured - but money markets hold principal steady at 100%. There was a money market (one or two) a few years ago that “broke the buck” but it never happens…that time was like your house getting hit by an asteroid…that rare.
You’ll grow - whatever the money market is paying - like 2 to 4% now and going down as the fed cuts.
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The PA 529 options are listed at PA529 Investment Plan | College and Career Savings Program
A common suggestion is to move money to more conservative investments as the time to use the money gets closer. However, individual circumstances vary, such as whether the colleges under consideration fall into various net price tiers, and how much the money is relative to the various net price tiers.
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For all our Vanguard accounts, I have the sweep fund set to VMFXX Vanguard Federal Money Market Fund. I haven’t even been moving our “cash” into anything else lately because VMFXX has been >5%. Some of my kids’ savings is squirreled into their custodial Roths and I just leave anything we might use soon in VMFXX since it’s earning well and it couldn’t be simpler to transfer funds. That’s also where I keep my emergency fund money.
So if someone really wants it as cash equivalent, setting VMFXX as sweep and just putting stuff there can be a good way to do it.
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It doesn’t appear to be an option in the PA 529 offerings - but sure, if it can be done - whatever the highest paying money market is.
These are the “preselected” Vanguard portfolios. As you know, 529s aren’t typically fully open - but limited - and of course, on top of fund fees, you pay an admin fee too which impacts returns:
Normally, you can see what is backing a fund - and I’m on a call but can’t look, but it’s not appearing by clicking on the portfolio - so I’m not sure which they are using- but it may not be avail on the 529. That depends on how PA set up the 529.
OK - I found the link to the fund they’re using:
Pennsylvania College Savings Program—529 Investment Plan (mypa529ipaccount.com)
Blended Stock and Bond Portfolios
GrowthPortfolio75 %25 %StocksBonds
ModerateGrowthPortfolio50 %50 %StocksBonds
ConservativeGrowthPortfolio25 %75 %StocksBonds
IncomePortfolio20 %80 %StocksBonds
100% Bond and Short-Term Investment Portfolios
ConservativeIncomePortfolio25 %75 %Short-term ReservesBonds
Short-TermInflation-ProtectedSecuritiesIndex Portfolio100 %Bonds
InterestAccumulationPortfolio100 %Short-term Reserves
Total BondMarket IndexPortfolio100 %Bonds
TotalInternationalBond IndexPortfolio100 %Bonds
100% Stock Portfolios
Total StockMarket IndexPortfolio100 %Stocks (U.S)
Social IndexPortfolio100 %Stocks
AggresiveGrowthPortfolio100 %Stocks (U.S and Inter…
TotalInternationalStock Index100 %Stocks (International)
Real EstateIndex Portfolio100 %Stocks (U.S)
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Oh interesting. I actually didn’t know since my kids don’t have 529s. We weren’t able to save explicitly for their college (long story). Their own college savings (from their earned wages) goes into Roths rather than CDs at the bank because FAFSA doesn’t count Roths.
I’m just so obsessed with low-fee funds that I don’t even look at anything else 
, so I don’t use the packaged funds. But yeah, I’d imagine that whatever money market fund is available is fine.
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That’s fair - one “rotten” thing about 529s are the admin fees that are above the normal fund fees.
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Have you considered using the PA 529 GSP? That was our terminal plan for our S24 (we started in a different plan but then transferred over as college was approaching). I think it has some nice features when you are going into this final stage.
For somewhat complex reasons it would be good if you could do this before the end of August to get the benefit of the upcoming increase in crediting rates (long story short, the way the GSP works, you get your whole annual return at the end of August, and you get it even if you just put the money in right beforehand). I am not sure about the timing at this point but you could call and ask–the PA 529 customer service people are generally very nice and helpful about such things.
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Look at the PA Guaranteed Tuition plan (TAP). Buy credits at today’s prices and use later.
Had I known how much college tuition would go up I would’ve done a HELOC when they were born. At the time I could’ve bought 4 years at PSU or Pitt for about $25k per kid. Four years is easily $150k per kid now.
It wouldn’t be as big a gain in your case but it’s safe and covers inflation.
There’s also a hack where you can rebalance every year with different tuition levels. If it’s more than your current level you keep the difference. Completely legal. They just don’t advertise.
We’ve noticed that the cash options (and the near term age-based options) for the Vanguard 529 plan in Nevada invest in short term Nevada state tax-free bonds, which is a foolish thing to do - they should be taxable bonds at least since the withdrawals are tax free anyway. As a result the yield is about 2.5% instead of 5% in Vanguard’s money market funds. I assume this is part of their deal with Nevada to be the authorized 529 provider. I have no idea if the PA plan requires a similar investment in PA securities.
But it is definitely problematic in terms of maximizing yield while guaranteeing the principal.
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Interestingly, in the last Schwab earnings call, it came out earnings were down because they use a money market for sweeps (I’m victim) - at .45% but have others like you are talking about at 4%+.
They are in essence making profits on my cash in my checking account.
I don’t worry about it - but yeah it’s costing some $$ for sure - $500 to $1000 a year.
So it requires more work - and I’ll get around to it - but yes, they are purposely hosing customers in this regard.
Yes, in Schwab, you need to buy and sell money market funds like other mutual funds, rather than automatically having them bought and sold as sweep accounts.
Yes, a 529 can be rolled over from one provider to another, but if the beneficiary is not changed this is limited to once every 12 months.
Is it clear that the new account still qualifies for 529 to Roth IRA rollovers? Or is this another issue (like state tax liabilities on those rollovers) that is still waiting for official IRS guidance?
I don’t know of any explicit IRS guidance on this, but I would think that if it’s the same money and the beneficiary hasn’t changed, the clock on eligibility for a Roth IRA rollover would not be reset. There are legitimate reasons that an account owner may want to move all the funds from one plan to another while maintaining the same beneficiary.
What did you decide to do? Are you able to self direct the investments in the 529? If it were me, if possible I’d either move some to a more conservative stock, maybe even one with dividends, leave some in a more aggressive stock, and maybe mov some to a high yield savings if this is allowed. Good luck!
I think the advice to check what your life cycle fund is invested in is a good idea. I suspect that fixed income funds will be decent investments at this point (they will increase in value when the Fed reduces interest rates) while you are waiting to spend the money so it would make sense to be in a portfolio like that.
Also, 529 plans are a great gifting vehicle. Whatever is left over can be given to grandkids – you can change the beneficiary from a kid to a grandkid with no consequence (unless they have changed the rules without me reading about it). So, it may be preferable to leave some money there rather than roll over into a Roth if my recollection is not mistaken, beneficiaries of inherited Roths must withdraw on a schedule over X (10?) years after the inheritance.
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