529 Investment vs Guarantee Reviews?

[Carnage]

Does anyone have any strong feelings on doing a 529 investment vs guarantee plan? I see a lot of pros and cons out there for which one you should do when your kids are young, but surprisingly not a lot of opinions out there from parents after the kids have gone to school, like did a guarantee option work well or not? Did the investment plan pay for enough school?

We live in PA if it makes a difference, and initially started under the investment plan, but now we're having 2nd thoughts and with inflation, thinking of starting a 2nd guarantee one.

 

[coveredbridge]

I had PA 529 GSP accounts for each of my three DDs. DD1 and DD2 attended a private university. The GSP worked really well for them because I was able to retroactively reassign the GSP Credits to the school that gave the best return on investment and then make withdrawals based on that tuition rate to pay for all eligible expenses.

DD3 decided to attend a PA State University System school (IUP). The GSP didn't work nearly as well for that situation because it would only pay out based upon the IUP tuition credit rate, and as you may or may not know, many state universities have held tuition low, but assessed rapidly increasing mandatory fees for everything from technology to recreation facilities, to the point where fees rival if not exceed tuition costs. So, even though I had more than enough tuition credits to cover tuition and some room and board, I was still on the hook for the mandatory fees. I actually ended up transferring the balance out of the GSP to another plan (Nevada- operated by Vanguard) and realized several thousand $ more in value because I was able to transfer the account at the investment value, which far exceeded the tuition value based on the IUP rate.

Bottom line is it depends on where your child ends up going to school. I think that when I was accumulating funds in the 529 accounts, tuition was generally far outpacing inflation, so the GSP seemed like a good deal. In recent years though, it seems like schools are trying to hold tuition inflation down while aggressively raising fees and room and board charges, which aren't captured by the GSP which is based only on tuition rates. The real benefit of the GSP now seems to be that participants receive the benefit of professional management of the plan assets. You just have to be mindful that if your child attends a PA State school, you will probably need to transfer the account to another plan to receive maximum value.

Also, and this is important, while the GSP is marketed as a GUARANTEED savings plan, in the fine print they tell you that the guarantee is limited to the plan's assets, there is no guarantee from the State or any other agency of the value of your investment. During the financial crisis of 2008, the GSP came under some pressure due to underfunded liabilities, but the subsequent market rally has substantially improved the fund's position. Still, be aware that there is no guarantee backing the plan.

 

[NOLA Rob]

My wife and I looked at it and have opted for the pure investment 529 plans for our kids due to similar concerns about the fine print and how little we know about what our kids will decide to do. We may be wrong, as we are not the most sophisticated investors by far, but we like the flexibility in the investment option and knowing the dollars we have available to spend on each kid without a bunch of unknown calculations worrying us. I haven’t reviewed in a few years since we made that decision, but I recall there were a number of limitations and financial impacts if you kid goes out of state, etc... We like having a dollar balance we can throw up next to the total costs of wherever the kids go, and then just having to figure out where the difference will come from. And if one or more of our kids don’t go to college, we can let it grow and convert it to grandkids one day.

 

[SnowballCamper]

WA only (Edit: [-]has[/-]) had the guaranteed plan (GET) so we go it when DD was young and after the first price increase, bought the max units (about ten years ago). Since then the state legislature fiddled with tuition, but the GET administrators were also able to increase your units commensurately with the reduction in tuition. It was a bit ridiculous for a while, but in the end I think it's ok. Still four more years til DD starts to spend it, but the simplicity of the program is nice...no maintenance actions for the user, as with managing investments in a 529. I do keep a Coverdell on the side to help as well.

 

[SecondCor521]

No strong feelings any which way, but here's what I did.

I have three kids: DS26, DSalmost21, and DD19. Each had various combinations of UTMA, ESA, and 529s, but most of the money was and is in the 529s. I used my state program and chose the investment option. There are also age-based options that work like target date retirement funds but for college. We don't have a guaranteed option like you're talking about; we do have money market / stable investment funds, though.

I treat the college funds collectively and freely shift money between the accounts as needed to reflect changes in the kids' needs. I also realized that by treating the accounts collectively, I could effectively rebalance by shifting assets around between accounts (which I can do any time I want on my state 529 website) rather than within an account (which I can do three times a year I think).

I basically have projections for each of the kids college costs in a spreadsheet. I keep the next four years in bonds, and anything beyond that in stocks. Any leftovers I have allocated according to the kids' investment preferences (since it'll be their money at that point).

Whether I have had "enough" in the college fund has varied. I didn't really know for a while, so I just picked a target number, saved that amount up, and then decided if I was short I'd figure it out. When my middle son got a good financial package to his school, I was relieved and thought I had things about right. When my youngest got a full ride, I thought I had too much. Now that my youngest is thinking about transferring to a more expensive school, I don't know but might not have enough.

Really, I'm aiming for a target of having a bit left when the last one graduates. But in practice, I'll either have too much, in which case I'll hand off the extra to them, or I won't have enough, in which case I'll exhaust the college funds then supplement from my personal funds.

The oldest has graduated, and the other two are basically sophomores. As they progress and things change, I just update my plans, monitor where I am, and act accordingly. I can't do any better, really.

My kids have all gone to standard US universities, so I've had no problems using the funds for their schooling. I usually disburse from the 529 to me and then write a check to the school. I think I can also have them send the check from the 529 to the school directly.

I assumed 6% inflation in my models and am fairly certain I've done better than that in their accounts, although I don't really monitor the performance that closely. College inflation over the past five or six years has actually run below that 6% number I think. And I would say that where the kid ends up going, scholarships, gap years, changing degrees, etc. can swamp any effort at an accurate expense estimate.

 

[Brat]

Fidelity 529?

I just noticed that Fidelity offers 529 accounts. I haven't found information about investments offered. Does anyone have experience with Fidelity's 529?

 

[qwerty3656]

We did the guaranteed option for all 3 of our sons and it worked out well. None of them went out of state or to a private school, so I don't have any experience dealing with that.