By Dr. Jim Dahle, WCI Founder
One of the dogmas of financial planning is that the shorter the time period between now and when you need the money, the less risk you can afford to take. While it is true that your retirement asset allocation ought to become less risky as the years go by, that doesn't necessarily apply to all your other savings goals. That includes taking more risks with a 529 account.
Most people fail to consider three factors when deciding whether to take risks.
- The consequences of not reaching your goal.
- The money may be needed over a range of time rather than all at once.
- Your risk tolerance is higher when you're investing someone else's money.
Consequences Differ Greatly by Savings Goal
Consider someone saving up a down payment for a house. This person may want to buy it in three years, so the traditional advice is to not take much risk with the money. But what are the consequences of not having exactly the amount the homebuyer needs in three years? They've got a couple of other options.
- They could buy a less expensive house.
- They could continue to rent for a few more months (or even a couple more years) while they save more money.
Not that big of a deal. That's much different than not having enough money to retire.
The Longer the Withdrawal Period, the More Risky Assets You Can Have
The other factor rarely considered is whether a lump sum is needed or a stream of income. A down payment on a house, for instance, is needed all at once. Retirement, on the other hand, is funded over decades. That's why you don't have a 100% cash portfolio by age 64.
More information here:
6 Ways to Increase Your Risk Tolerance
It's Easier to Take Risk with Someone Else's Money
Financial advisors find it much easier to tolerate market ups and downs than their clients do. They spend a great deal of time in volatile markets “holding their clients' hands” so they don't panic and sell out. Psychologically, it's hard to watch the money you were counting on to provide you security disappear. But sometimes in personal finance, you're not actually investing for yourself.
Consider an older investor with a large nest egg. They realize that they are investing much of their portfolio for their heirs or a charity. At that point, they may start investing that money much more aggressively than the money that is providing the income stream from which they are living. They might rationally have a riskier asset allocation at 85 than they had at 65.
Should I Take More Risk with a 529?
My kids' 529 accounts have been invested 100% in stocks even though my retirement portfolio is only 60% stocks. When I originally wrote this piece in 2012, the accounts weren't that large, so there was definitely a need for the money to grow. But more importantly, those 529 accounts meet all three of the above criteria.
Consequences of a Small 529 Account
Guess how big my 529 account was when I started college 18 years ago? That's right, zippo. I got through both college and medical school pretty much without loans, too. There are lots of options they can take if the 529 doesn't cover all the costs:
- Go to a less expensive school
- Get scholarships
- Work full-time in the summers
- Work part-time during the year
- Join the military or another organization that will pay for school
- Have a lower lifestyle in college (no car, for instance)
- They can take out loans
- You can take out loans
- Use your current earnings
Those consequences of a smaller 529 seem pretty minimal compared to eating Alpo during retirement. Therefore, you can take more risk.
529 Money Isn't Needed All at Once
When I last updated this post, my oldest was 16, so I needed to start using that money just two years later. But I didn't need it all on September 1st, 2022. I figured that she'll likely go to college for four, or even five years. She may take a year or even more off. She may go to grad school or even medical school. It's possible she'll be withdrawing from that 529 over an entire decade. So, some of that money might not be needed for nine years or more. That allows the portfolio to recover from a down market that may occur just before she matriculates.
More information here:
How to Use Real Estate to Pay for College
Despite Our Student Loan Debt, Here’s How We’re Filling Our Kids’ 529s
It's Really Not My Money
Psychologically speaking, this is money I've already spent on my kids. I've mentally divorced it from the rest of my portfolio. Since I don't have to deal so much with the consequences of it performing poorly, it is far easier for me to tolerate its volatility. I hardly even look at it.
That allows me to invest it aggressively without feeling a need to bail out in a down market.
Should you have a more aggressive asset allocation in your 529 than in your retirement portfolio? Or are you playing it safe with your kids' college fund?
[This updated post was originally published in 2012.]
i cant agree with you on this one. I think a limitation of 529s is the time period. Its a limitation that people should just recognize and plan accordingly. If you are too aggressive then you can have near nothing when you need it. I think people just need to plan appropriately meaning they will need to save more. It also is your money. If you are a physician then likely you are paying in part for your kids education. If the investments do poor, you are likely paying more later. I dont see how this becomes some one else’s money. I personally cant do a jedi mind trick on myself.
For retirement, you can work a few more years if necessary. It likely isnt wise to delay going to college a few years.
Several of the other points are true but i still dont see them as reasons to be overly aggressive. There are however consequences for some of those things. For instance not everyone is going to work full time and receive the same grades in college. I am a fan of the ROTC and HPSP routes as you know although we differ a little on their benefits and negatives.
white coat investor and Rex,
I would like to hear your asset allocation strategy for your 529 plan ?
If you are 100% stocks for a 7 yr old…..what is your planned asset allocation as your child gets older ?.
My child is 4 years old currently. My asset allocation is currently ( 70% Total US Market Index, 20% Total International INdex, 10% Total Bond Index).
My plan for age 6-12( 60% US , 15% International, 25% Bond), age 12-18( 40% US, 10% International, 50% Bond). Depending on the value of the portfolio and my childs college plans/costs around age 16-18……I may move a percentage of the portfolio to a stable value fund.
im not a good person to ask for that particular question bc mine is with utah and its an age based primarily vanguard approach. i believe they allow you more control if desired.
Good discussion. I am going with more conservative approach. I am in Virginia and planning to buy prepaid for my both kids. I think it gives me a good security. In Virginia it includes top rated universities like University of Virginia and Williams & Mary. And then if I can save more later, I can start putting in regular 529 which can be used for housing etc. I see it as an insurance for my kids education. It might not cover Hopkins or Duke, but UVA is right up there
Sam did you end up using the Va prepaid plan? Have you been happy with it?
My wife and I are trying to compare the prepaid vs Invest. We both went to VT and recently moved back to Va. Children are 7 and 5. With the increasing cost of college It seems like a great deal and fortunately Va has many great schools. Prepaid isn’t cheap!!
I Would appreciate any recommendations. We’ve considered potentially prepaying for 2-3 years for each kid then putting the rest in Invest.
Thanks in advance,
Bailey
I am 100% stocks for all my kids (7,5,2) and it is split 50/50 between Total (US) stock market and total international stock market.
When will I get less aggressive? Haven’t decided yet. Certainly not before they’re 15. I just feel like I can really take a lot of risk with this money since it isn’t my money nor do I have to bear the consequences for its loss. I don’t feel responsible to pay for my kid’s schooling. If they decide to go to Yale and there’s only $40K in the 529, that’s their problem. Will I help out of current earnings? Probably, at least some. Will I take a loan out for their college? No way.
There’s nothing wrong with an age-based allocation for a 529, just like I think it’s a fine choice for a retirement plan in many cases. Certainly if I were going to recommend an asset allocation to a family member, I’d probably recommend an automatic age-based option.
I really don’t understand this logic. You wouldn’t gamble your retirement accounts with a 100% stock allocation. Then why would you be willing to gamble with your kids education? In my opinion the approach should be exactly the same retirement vs college savings. The time frame is just different and allocation should be adjusted accordingly. My goal is different as I would like to be able pay for all my kids education. But I completely agree that in no way should that interfere with retirement savings. My oldest is only 4 and fortunately I was able to max out contributions to a 529 during the bottom of the market in 09. I am already considering moving some of the funds out of stocks given the significant gains. My goal is to be able to cover the costs of college with 529 plans and graduate school can be paid for with non-retirement accounts. After age 23 the kiddie tax will no longer apply so gifts of stocks (28k today’s dollars) would most likely not be subject to long term capital gains when my kids are in graduate school.
I think the reason you’re not getting the logic (which I think it is pretty well explained, but if not, here’s a more recent post on my thoughts on my children’s educations: https://www.whitecoatinvestor.com/how-my-children-will-pay-for-their-college/) is that you’re planning to pay for all of your children’s education. I’m not. Since I’m not planning to pay for all of their education (like a defined benefit plan) but rather am making defined contributions towards it, I want to take the approach that is most likely to give them to the most amount of money toward their education. The approach most likely to provide the most money is an aggressive asset allocation.
Other reasons I can be aggressive include that it is currently a relatively small amount of money in their education funds and that the consequences of shortfall are so minor compared to a retirement shortfall.
You state, “The approach most likely to provide the most money is an aggressive asset allocation.” This is correct over a long-term horizon, it is not correct over a short-term horizon. Your arguments add up to ‘damn the risk, full speed ahead’ because your daughter is the one who will have to deal with the consequences. I suspect that most financially savvy kids would prefer a more modest 529 gift with some certainty.
Should we ask her? 🙂
Yes, my approach IS “damn the risk” because the risk really doesn’t exist in my case. It may for you, however. For example, if you want to pay exactly $200,000 for college and you have $190,000 and college starts in 2 years, you the risk of not reaching your goal using 1 100% stock portfolio is not insignificant.
That’s not the case for me and I think for most WCIers. Step back a second and ask yourself what you would do in a worst case scenario. So let’s say I’ve got a $180,000 529. And my kids’ undergraduate annual cost of attendance is $21,120. Now let’s say the market drops 50% and doesn’t come back for 6 years. So now I have a $90,000 529. Will I still reach my goal? Yes. What if the market dropped 90%? Now I’ve only got $18,000 in there. What would I do? Well, I’d cash flow that $21K and let the 529 ride. Will I still reach my goal? Yes. Let’s say my portfolio drops by 95% and I lose my job too and WCI goes out of business. Then what? Well, my kid can work for $10k this year and borrow $11K. She still gets to go to college. See what I mean? The risk is very different from that happening in my retirement portfolio. So Ic an take more risk. Maybe you can’t. But I think most people can.
Even in a more likely scenario it’ll probably still be ok. Let’s say you have $200K in your 529, you told your kid you’d pay for everything, and you need $50K a year and the market drops 25% just as your first payment is due. What do you do? Let’s say you only pull out $20K form the reduced 529, make up $10K with cash flow, and your kid borrows $20,000 for that year. The market has only come back a little the next year, but you take $50K out of the 529. The year after that is great in the market and you see a 30% gain. The year after that is solid and you barely manage to cover the entire annual bill with the 529. Your kid has a degree and a $20,000 debt. You go to pay off her debt three months later and you find out she’s already paid half of it off and you’re so proud of her.
I’d be curious to hear your scenario and what you’d do that makes you want to use a much less aggressive asset allocation instead.
My goal would be to optimize the likely final value of the 529 investment for my daughter. The value of the no-risk investment option has risen recently because inflation has fallen but FDIC-guaranteed returns have not. That could, of course, change in the remaining two years you have before she starts school, but that is the current situation. The historical long-term rate-of-return for stock is, of course, much better, but the risk, volatility, of stocks increases dramatically over shorter time horizons. The fact that you and your daughter could survive a bad market outcome doesn’t mean that you should put yourselves in a situation where that is likely.
However, I agree with your observation that your daughter is likely to have a need for 529 funds until at least six years from now and, if she follows in your footsteps, for many years longer. So I would partition the investment so you have the portion focused on her first school years in low-risk CD-like investments or bonds, since a downward interest rate trend is currently likely. Equity investments would be appropriate for the portion with the longer-term horizon. Hopefully, as the years progress, you can capture some market gains and shift those funds into the lower-risk investments so you continue to have a buffer of a few years of college expenses that are not subject to market risk.
This is how I believe you could maximize the likely risk-adjusted future value of your 529 plan investment for your daughter.
Thanks for sharing your thoughts.
Sam,
I am familiar with all the schools you mentioned to varying degrees. I do think those are excellent state schools–two good reasons to live in Virginia. With regard to pre-paid plans, you should at least read up on the experiences of other states. Virginia’s VPEP plan has a statutory guarantee not a constitutional guarantee and could be changed by the General Assembly, although subject to veto, if they have a budget shortfall (states this clearly on the VPEP main page). I would also consider what you would do if your children did not get into UVA or William and Mary. Would you be okay with Virginia Tech, VCU, Old Dominion, James Madison, etc. if they could get into better out of state schools? Probably would depend in part on their planned course of study.
A possibility to consider would be to hedge your bets, similar to the tax diversification concept. For instance, you could potentially purchase one or two years through VPEP and fund the rest with a combination of the VEST plan and cash flow during their college years. That said, I don’t think there is a clear best way to go. You can only plan so much. Good luck.
Interesting post.
Another point that isn’t mentioned that allows you take some risk is you can change the beneficiary, like another child. For example, I have 3 siblings and my youngest brother is 9 years younger. My parents had children in college continuously since 2001 and my brother will graduate in 2013. That’s a 12 year span to use the 529 (oh yeah, that reminds me I owe them thank you #178 for their support) and now there’s a grandchild.
Great point. Wish I’d thought of that.
I’m new to the WCI and catching up on the classic WCI posts. I’m in my second year post fellowship. Something you touched on here, is saving for retirement vs a house. I have a financial advisor. Per his advice, I spent my first year saving 6 months of post-tax salary for emergency funds, at the same time putting 10% income in a 403B and $5500 in a roth IRA. Now saving as much as I can towards a house, which I’d like to buy in 1 year. Am I doing myself a disservice by not putting away 20% towards retirement (as you recommended elsewhere) and delaying buying a house?
No. If you’re doing any disservice at all it is simply that you’re not putting 20% toward retirement, saving up that emergency fund, and saving up a house down payment by living like a resident. But if you’re simply not willing to live that cheaply, then you’ll have to prioritize because you then can’t do them all at once. But they’re all good things to do and the order doesn’t matter much.
If you don’t mind saying, how much are you spending in comparison to what you spent as a fellow? 1X, 2X, 3X? That’s where I’d focus for your first 2-5 years out of training. Try to make the percentage of your income going toward wealth building as high as possible and worrying less about where exactly it is going. As you can see, you’ll have it all done very soon (emergency fund, blossoming retirement funds, house down payment, student loans paid off etc.)
Really appreciate your reply. I’m spending 1-2x more. Trying to live like a resident. Increases in spending have to do with kids (day care tuition, more groceries, activities, etc). Thanks so much for your advice.
Not too bad. Like I said, you’re going to get where you want to be pretty soon. If you are comfortable with it, you might cut your E-fund to 3 months and use the extra toward your other goals too.
Hi Josh,
Keep reading the blog it will really help guide you. There are so many variables to consider. One you need a place to live. I assume you are renting, how long do you plan on staying in your house and what is the difference between rent versus buy in your location. In general the longer you plan to stay in a home the better it is too buy. That being said some who bought in 2007 and just finally coming above water. I would also recommend reading more about financial advisors on the site. He does a great job breaking down the pro’s and cons of advisors. I like to think of advisors in three groups. 1) salesman who also give advice while trying to sell whole life. 2) fee based. They manage your portfolio for a fee. 3)paid by the hour to give advice. In my opinion the first one should be avoided like the plague. The second one is preference, since you are in this site you can easily learn what you need to save yourself 1-1.5% fee.
Good luck!
Don’t mistake fee-based for fee-only. Fee-based means they get a fee and a commission.
I tried to keep it simple. I would tend toward lumping those that also charge commission or sell a client loaded funds on top of their fee to manage a portfolio to be more of group #1 and should be avoided. Basically anyone who makes money by selling you a product does not have your true interest at heart, in my opinion.
Thanks, Lee. Fair enough. I was told by so many people to get a financial advisor because I have no idea what I’m doing. As I learn more, will likely reassess soon.
I know this is an older post, but I imagine it continues to attract new WCI readers, so I wanted to offer an alternative perspective. My wife and I both had to pay our own way through college. For me that meant scholarships, but for her it meant 6 years of working and taking classes. As a result we both agreed it would be a priority to pay for a four year education for both kids. My mindset was that I needed to be absolutely conservative with the money to guarantee it would be there when freshman year arrived. We actually did two things. We bought a rental house with positive cash flow with the intention of refinancing for one of the college educations. (The real estate story is another whole post –originally five, but we kept two with positive cash flow.) Then we started with EE savings bonds for lack of other options. Our income outpaced the savings bond tax break, but around then 529s became an option. The hard part was finding a plan that had low cost funds invested in ST bonds (NYSAVES and Vanguard). Just to clarify, I knew that theoretically I was giving up greater potential returns by staying away from stocks. And I was definitely giving up an immediate tax break by using an out of state 529. But remember, my overriding concern was to ensure the money would be there. And I knew there was zero reason to believe I would correctly time the stock market. I felt somewhat vindicated when my daughter started college in 2008 and the stock market dropped 50%. Plenty of money in both 529 accounts to pay for two full time educations. We never touched the rentals. By the way, it does require prioritizing, but along the way we managed to also fully fund retirement, so both are possible.
Three bones to pick with your approach:
# 1 In the worst case scenario, which you experienced, you managed to avoid a 50% drop. But by investing conservatively for 18 years before, you probably missed a 100% gain. Maybe if you had invested more aggressively, your portfolio would have dropped to the value it grew to using a conservative strategy.
# 2 To make matters worse, 2008 had a fast recovery. By your daughter’s senior year in 2011, not only did that money recover to its original value, but it was ahead.
# 3 You don’t mention your state, but if your state did offer a tax break for the 529, in many states you could have just rolled it over to another state without having that tax break be recaptured. And if not, the tax break was likely worth several years worth of conservative returns. In my state, I get a 5% tax credit. If ST bonds are paying 1.5%, that’s 3 years worth of extra returns right there. Definitely worth paying a little higher ER or whatever to get that.
At any rate, there are many roads to Dublin. You had a goal, and you used a method that reached that goal. That’s success. You might have had to save more than you otherwise would have, but given the timing, probably not by much. So, well done!
I like your back up plan with the real estate too, and have written a bit about it here: https://www.whitecoatinvestor.com/real-estate-as-a-college-savings-tool/
If I wasn’t clear, let me stipulate that I completely accept your argument from a rational perspective. I always knew my plan was more driven by emotion than logic. We really wanted the money to be there for college, and we did not want to take any risk. So, I offered my story in case any others out there felt the same way.
As an aside, we kept all of our money earmarked for retirement 100% in equities until recently when I started to reposition to a more balanced portfolio. The overall (mix (college plus retirement plus savings for near term wants) was aggressive by any reasonable measure. We just earmarked the safe money for college. Anyway, I don’t necessarily recommend my approach; but just want your readers to know it can work.
But the best part about your story is that it wasn’t an irrational “I’m scared so I’m going to invest in ST bonds for college” kind of thing. It was a “I’m going to invest in a low expected return investment so I’ll need to save more and I can do that” kind of thing. That’s why you were successful.
Interesting that you feel just the opposite that I do- I feel I can take more risk with 529s than retirement and you felt the opposite.
Since it is all behind me I can say with hindsight that your approach, towards both 529s and the kids paying a share, would have worked great for me too. I guess it is just a personal answer on where to accept risk.
One factor not discussed above is that I have a military pension, so I can afford more risk with my retirement investments. In the worst case I would work longer, which I might anyway. But the college was on a schedule.
Not sure if any of the commenters from 2012 are still hanging around this site but I would love to hear updates about how they ultimately invested their 529s since their kids are probably now either in college or close to it. I have very young children now so 100% equities in our 529s. Haven’t decided yet if we will reduce risk later on
I can tell you how mine worked out. I now have four 529s that are likely dramatically overfunded. I’ve also used 100% stocks for the niece and nephew 529s (31?) and there are currently 5 in college in this generation and 4 more starting within the next 1-2 years. Only one account depleted so far. I did feel bad for one of them who withdrew most of the money during 2022. I think he still came out ahead overall for being 100% stock for a decade plus, but obviously it would have been ideal to have had it all in cash during 2022.
Interesting perspective and update. Wanted to get your thoughts on a middle road approach:
I currently have enough saved for a 4 yr out-of-state private college for my 11 yr old (thanks bull run of 2009-2019!).
I’m wondering: Would a nice risk hedge be to have 2 years worth of those expenses in bonds, either right now or closer to graduation date?
The way I reason it, the average duration of a bear market is around 2 years and I would have time to figure out other sources of college funding if a bear market raged on longer. If none shows up at the time, we’ll have enough to move the lifetime limit to a Roth, fund grad school, and/or fund grandchildren’s higher ed.
Thoughts?
If I was in that situation I’d switch to a target date approach to reduce risk. You’ll still have some growth. I assume you have tuition plus room and board covered, not just tuition. If just tuition maybe keep going since you have 7-11 years before the money is spent.
Sure. I think I’d move it back to 100% stocks if you change beneficiaries to grandkids .
Yeah I have a similar situation. But let’s say the market kills it and you do REALLY well? Like 15+% per year and now you are well over budget. That’s okay if you have another kid to give the surplus to. But what if you don’t? Do you have a plan for that surplus money?
I don’t have another kid and don’t plan on giving it to grandkids or taking cooking classes in Italy. So I’m inclined to just put the money ultra conservative since I’m already at goal and the risk of loss is more important to me than the potential of gains. I know that philosophy will not be popular
Appreciate the point of view.
I don’t mind helping grand kids out personally or having the surplus for my child’s graduate education (boy would we have loved starting practice without student loan debt)
Or, maybe I’ll go back to school and get a degree. Who knows?
These 529s are more flexible than people perceive them to be.
Ahead of Schedule,
Overfunding a 529 is not a big deal anymore. Assuming your situation of no other beneficiary to use the plan, you convert it to a Roth-IRA. Starting in 2024, beneficiaries of 529 plans can roll the money over to a Roth IRA, tax and penalty free (Secure 2.0 Act, 2022).
Only to the beneficiary
Account must exist for 15 years
No rollover of contributions and earnings for last 5 years
$35,000 maximum lifetime amount
Annual maximum is Roth-IRA maximum
No MAGI cap for rollovers to worry about
It’s a big deal if it’s overfunded by more than $35,000 though!
Great summary @Malum Prohibitum! One additional item to note is that the beneficiary must have earned income equal to at least as much as the amount transferred in any year. Likely not an issue for most, but would have to wait if beneficiary was in school and not working at all.
It’s an interesting discussion, but also different for you since you have the availability to cash flow any college in the country with your high income so risk of loss is less. Plus if I remember correctly your kids aren’t going to the $80k/year schools.
All stocks to start seems best, but the question is when (if ever) to take away some risk. I was thinking about switching to a more conventional age based target date plan once I reach the cost of 4 years in state tuition plus room and board but hard to know the best path. I’d like more money of course in case kids go to an expensive school or to use later for grad school or Roth transfer.
I’m not as rich as Jim so can’t cash flow any school if there happens to be a 50% drop right before the college bills start. My income is high enough to be no aid but not so high to not have to worry. Consequently I need to think more carefully about how to manage things.
I am 70 yrs old. Grown children. Have abt $30K in 529 acct. Wh I Transfered to myself after children graduated. I hoped to giv to grandchildren, but so far have none. Heard abt a new rule where we can transfer WO penalty to retirement acct. Max of $30K over few yrs. But that amt shd b taken as max contributions fr the year . So I wud not b able to deduct for that year. I am in 22% tax bracket now. Wht wud happen after my death? Tax & penalty ? Wht if charity is the beneficiary of 529? Thank u.
You have to have earned income to do that. Do you have earned income?
A Roth IRA is the dumbest thing to leave a charity instead of heirs. Surely you have something better to leave to charity?
And it’s $35K, not $30K.
https://www.whitecoatinvestor.com/the-529-to-roth-ira-rollover/
https://www.whitecoatinvestor.com/charity/
Long before I was a reader of the white coat investor blog and while my oldest two children were young we saved $2000 each year in a CSA for them and were dumb enough to keep the money in cash until early 2010. Foolishly, and for no particular reason, we invested 100% in Apple and Google and still foolishly to this day, have maintained the same asset allocation. The accounts are now massive, particularly for the low tuition here in Utah. We have 529 accounts for the other children, have contributed the maximum allowed for which there is a tax credit here and invested 100% in total stock market index fund. All “foolish” investments but at the time I reasoned that those accounts would be a small portion of my total savings and that I would have years to recover from downfalls if they occurred.
That’s why indexing will never take over 100% of the market due to the lottery like potential of individual stocks. $20k in 50/50 Apple / Google, start date 12/31/2010 would be worth $367k now vs $103k in voo (s&p500). The s&p500 still had a great 5x return, though.
Glad it worked out so well for you! Obviously you’re not going to judge the process by the outcome, but sometimes it’s just better to be lucky than good.
What if your child is 6 years away from starting college and even adjusted for inflation you are 15-20k above their cost of college, room, and board? You still go 100% equities? I could see shooting for a surplus of 35k to use for a Roth later but at the same time, if you are at your goal with years left, you hit your goal so maybe just put in it in the 5% FDIC option?
That would certainly be fine. There is no need to take risk you don’t need to take.
Definitely something to be said for not taking unnecessary risk when you’ve reached a goal. That said, we are in a favorable environment with money market funds today, but not too long ago that wasn’t the case. Being 6 years out, there is time to recover from a potential market downturn. If you’ve reached your goal you likely don’t need to roll the dice with 100% equities, but it may be worth considering some equity exposure since still 6 years away.
I totally agree with this and feel the same way.
There is a lot of variability between good, less expensive schools and fancier, very expensive schools. The money that’s in the 529 will be what it is (there should be a lot because I’m starting really early and investing really aggressively) the kids will get to decide (with help) if it’s worth going somewhere that costs more (and taking some financial responsibility for that choice in the future).
Hi,
I am filing 2023 taxes and owe about 25k in federal taxes.
We are considering gift money for our two kids, hoping it’d reduce the tax burden.
1. Can we still contribute tax money for 2023 tax year?
2. Gift money is tax deductible, right?
2. What are the consequences of gift money, especially tax burden down the line and scholarships for college?
Looking forward to hearing back from you soon.
Thank you!
1. No
2. No
3. If you give more than the annual gift tax limit ($18K) you have to file a gift tax return and starting using up your estate/gift tax lifetime exemption.
Sorry, giving money away doesn’t help your tax return in anyway except that maybe if the recipient is in a lower tax bracket than you you can use this to “flush” capital gains out of your account.
Hi,
I am reposting my questions.
I am filing 2023 taxes and owe about 25k in federal taxes.
We are considering gift money for our two kids, hoping it’d reduce the tax burden.
1. Can we still contribute tax money for 2023 tax year?
2. Gift money is tax deductible, right?
2. What are the consequences of gift money, especially tax burden down the line and scholarships for college?
Looking forward to hearing back from you soon.
Thank you!
Answered elsewhere, but took a while (I was in Peru, sorry!)
1. No
2. no
3. Just affects the estate tax exemption.
Appreciate you getting back on this.