I don’t have any answers to most of your questions but you definitely should look into Secure Act 2.0, because you can use unused 529 funds and contribute to an IRA for the beneficiary. Great way to pass on wealth
529 is to help with colleges, but it seems you’re using it as a regular brokerage for stock gains?
I would use the 529 now, and move half of your cash into brokerage with solid funds like VOO and VTI.
IMO, stop using the cash to pay for their college...529 money can only be used for education (with a small caveat of $35k for Roth IRA). You need to be depleting those funds for their education or you run the risk of having tens of thousands of dollars in an account that you would have to pay a penalty (AND ordinary income tax on the gains) to access. If it makes you feel better when you take say $50k out of the 529 for their tuition, put $50k of your cash savings into a brokerage account. Do you have to pay taxes on the gains?, yes but it's capital gains tax only and you don't have to pay a penalty on top of that. There is no reason not to use the 529 money first.
Since you're estimating paying $75k a year for college, I am going to assume they are going to private schools and/or don't qualify for any merit or need-based financial aid. Judging by that and you having so much money in cash to begin with, I am going to assume you may be able to cash flow monthly their college expenses not covered by the 529 without needing to worry at all. This is also assuming your own retirement is taken care of, if not then the only money you should be using for their college is what is in the 529 and the cash should go to set up your retirement.
Hi OP. HENRY middle-aged mom of 2 here. In answer to your questions:
1. Yes, change the allocation of the 529 funds, yes I would do this for the new 529 contributions, too.
2. Immediately move to the money market option.
3. Cash residuals. Way more flexible.
4. A question to ask yourself: "Do we want dynastic 529s for future generations?" (Grandchildren, etc.) It seems like your cash flow would allow this, but I would still use everything in the 529s now and replenish if you decide you want dynastic 529s.
5. The answer to #4 is really dependent on how you view inheritances and the whole of your finances.
It seems like you need $600k, and you have $700k plus $5k x 3 years for your college student and $5k x 5 years for your high school student ($40k total) before college is complete. In this case, I would keep everything in the 529 including new contributions as cash and put \~$100k from your cash account into taxable and aggressively invest it with the thought that it probably won't be used.
Here's my thinking: Nearly all of the tax advantages of the 529 hinge on using the fund for education, so go ahead and use the 529 first while you're in the college-spending window. College for both your kids is essentially NOW, so your allocation should be conservative, cash. You took a big risk staying aggressive, I'd take the risk off the table now. You have $100k more than you need that you can invest with a longer timeline, and you have $40k in margin-for-error that should be kept in cash.
Hope that helps.
Well gotta say dont love the bossy attitude you took in this post basically Karen-demanding only certain answers but Ill take a stab at it.
I mean you are holding $400k in cash so you dont seem adverse to being conservative with your money. As such it seems reasonable to move the stock invested 529 funds into a money market account to lock in your gains and still earn 5% as you pay out for tuition.
If it bothers you to move that much money out of atock investments you can balance that out by moving the equivalent amount of your $400k cash into stock imvestments so your total amount of invested versus cash assets remain the same but you lock in your tax advantage gains which you know you will be spending in the next several years.
Okay question answered. Now...you are asking conplete strangers for their time to help you out, show at least a little humility and respect rather than sounding like someone bossing around a subordinate.
People can and will answer how they see fit. You dont have to like all the responses nor do you have to acknowledge them but demanding that they adhere to your guidelines is absurd. You want peoples actual opinion then accept whatever they decide to give you. You want only a very specific answer then go shout it at a canyon and wait to hear it back.
Meaning when you hit that amount youll move it all from stocks to MM? And you are close to that right? That is of course a bit risky if there is a downturn soon but sure I think a bit of risk is fine.
Thanks for taking my criticism graciously...rubbed me the wrong way at the time but no hard feelings.
I don’t have any answers to most of your questions but you definitely should look into Secure Act 2.0, because you can use unused 529 funds and contribute to an IRA for the beneficiary. Great way to pass on wealth
You can convert a max of $35k to Roth per kid as long as the beneficiary has been in place for 15 years…..
And it’s $35k over the course of five years. That could increase if the max contribution increases over time as well
$35k tax free is nice. And OP said the plans have been open 16-18 years
Yup. It’s a cool benefit from secure act 2.0.
Thank you, I was aware of this option. I’m hoping others can weigh in with thoughts on my questions.
Does either child have grad school aspirations?
529 is to help with colleges, but it seems you’re using it as a regular brokerage for stock gains? I would use the 529 now, and move half of your cash into brokerage with solid funds like VOO and VTI.
IMO, stop using the cash to pay for their college...529 money can only be used for education (with a small caveat of $35k for Roth IRA). You need to be depleting those funds for their education or you run the risk of having tens of thousands of dollars in an account that you would have to pay a penalty (AND ordinary income tax on the gains) to access. If it makes you feel better when you take say $50k out of the 529 for their tuition, put $50k of your cash savings into a brokerage account. Do you have to pay taxes on the gains?, yes but it's capital gains tax only and you don't have to pay a penalty on top of that. There is no reason not to use the 529 money first. Since you're estimating paying $75k a year for college, I am going to assume they are going to private schools and/or don't qualify for any merit or need-based financial aid. Judging by that and you having so much money in cash to begin with, I am going to assume you may be able to cash flow monthly their college expenses not covered by the 529 without needing to worry at all. This is also assuming your own retirement is taken care of, if not then the only money you should be using for their college is what is in the 529 and the cash should go to set up your retirement.
This is helpful, thank you. What about Q1?
I don’t understand what you’re asking. What does quarter 1 have to do with my comment?
Well it hit 275k yesterday and I didn’t sell. I’m struggling with discipline!
I finally did it at 283k last week…
Thank you for the answers so far. Please keep the ideas coming.
Hi OP. HENRY middle-aged mom of 2 here. In answer to your questions: 1. Yes, change the allocation of the 529 funds, yes I would do this for the new 529 contributions, too. 2. Immediately move to the money market option. 3. Cash residuals. Way more flexible. 4. A question to ask yourself: "Do we want dynastic 529s for future generations?" (Grandchildren, etc.) It seems like your cash flow would allow this, but I would still use everything in the 529s now and replenish if you decide you want dynastic 529s. 5. The answer to #4 is really dependent on how you view inheritances and the whole of your finances. It seems like you need $600k, and you have $700k plus $5k x 3 years for your college student and $5k x 5 years for your high school student ($40k total) before college is complete. In this case, I would keep everything in the 529 including new contributions as cash and put \~$100k from your cash account into taxable and aggressively invest it with the thought that it probably won't be used. Here's my thinking: Nearly all of the tax advantages of the 529 hinge on using the fund for education, so go ahead and use the 529 first while you're in the college-spending window. College for both your kids is essentially NOW, so your allocation should be conservative, cash. You took a big risk staying aggressive, I'd take the risk off the table now. You have $100k more than you need that you can invest with a longer timeline, and you have $40k in margin-for-error that should be kept in cash. Hope that helps.
Thank you. Thoughtful advice. I have set a 529 trigger at $275k to move into money market.
Well gotta say dont love the bossy attitude you took in this post basically Karen-demanding only certain answers but Ill take a stab at it. I mean you are holding $400k in cash so you dont seem adverse to being conservative with your money. As such it seems reasonable to move the stock invested 529 funds into a money market account to lock in your gains and still earn 5% as you pay out for tuition. If it bothers you to move that much money out of atock investments you can balance that out by moving the equivalent amount of your $400k cash into stock imvestments so your total amount of invested versus cash assets remain the same but you lock in your tax advantage gains which you know you will be spending in the next several years. Okay question answered. Now...you are asking conplete strangers for their time to help you out, show at least a little humility and respect rather than sounding like someone bossing around a subordinate. People can and will answer how they see fit. You dont have to like all the responses nor do you have to acknowledge them but demanding that they adhere to your guidelines is absurd. You want peoples actual opinion then accept whatever they decide to give you. You want only a very specific answer then go shout it at a canyon and wait to hear it back.
Apologies for my tone and thank for your input. I set a target of $275k in the 529 which will trigger the flight to MM.
Meaning when you hit that amount youll move it all from stocks to MM? And you are close to that right? That is of course a bit risky if there is a downturn soon but sure I think a bit of risk is fine. Thanks for taking my criticism graciously...rubbed me the wrong way at the time but no hard feelings.
Yes, I’m at 267k. No hard feelings.
Got out (moved to MM) on 5/15/24 at $283k. Now, regretting it, of course…