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AA for college funding
Old 09-19-2019, 08:04 PM   #1
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AA for college funding

WA state's 529 plan is basically prepaid tuition, but only tuition up to the highest cost state school, and we're all paid up for five years of school.

For other expenses I have a coverdell education savings account with about 21k of VOO (Vanguard S&P 500 ETF) which has done nicely so far.

College starts in about six years, and the coverdell contribution limit is 2k per year.

Looking for suggestions on the way forward in terms of AA and specific funds, but mostly the thinking behind the recommendation.

On the one extreme I could stick with VOO and try to get out before the dip is too deep. I think we're due for a correction, but have no idea if its next year or in ten years.

I could buy into a bond fund with new contributions, but which one?

Also, any 'tricks' to know about in terms of the coverdell rules?


--At what age does spending less now in order to have more later stop making sense?
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Old 09-19-2019, 08:24 PM   #2
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100% equities is extremely aggressive for an expense due in 6 years. Vanguard has age-based glidepaths available on their 529s, with the following AAs for someone 11-12 years old:

Conservative: 10/90 stock/bond
Moderate: 40/60
Aggressive: 60/40

If your 529 really is prepaid tuition then you probably don't need to be the most conservative AA - but 40-60% stock seems reasonable. But if you follow this model you should be adjusting your AA to be more conservative every two years or so.

Vanguard's take is here:

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Old 09-19-2019, 08:29 PM   #3
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Oregon College Savings Plan uses vanguard target funds for AA and timing withdrawals.
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Old 09-19-2019, 09:30 PM   #4
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First thought: Is the student guaranteed (or required by you) to go to a WA school? Or can it be used out of state?

I have three kids in or near college. What I do is put any expenses projected to be incurred in the next three years into bonds and the rest in stocks. That's aggressive but I'm OK with the risk/reward trade-off as I have backups if needed.

I use VBTLX in ESAs or my state 529 bond fund for bond investments (which are also Vanguard funds underneath the hood).

One trick that I wrote about in another thread here is that you can withdraw from ESA and turn around and contribute that money to the 529. If you do that, the ESA withdrawal is not taxed, and the 529 contribution may be deductible on your state taxes (it is in my state). Net result is that the college funds stay the same but you get a state tax deduction on the transferred amount.

Reading Pub 970 on is possibly a worthwhile exercise.
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Old 09-20-2019, 06:51 AM   #5
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We used 529 plans and also the American Opportunity Tax Credit. You may not be able to use the AOTC if your income is too high or if you have overfunded your college savings which seems to be likely since you already have 5 years of tuition in the can.

In your shoes, I'd stop saving/investing specifically for college and just put the money in a joint taxable account invested tax efficiently and perhaps a little bit in an age-based 529 plan. If you wanted to change the AA of the Coverdell, then going with a Target Retirement, Life Strategy or Balanced fund with at least 60% equities would be what I suggest.

It really seems that coverdells are way out of favor nowadays since 529 plans are used instead. 529 plans don't really have limits like a Coverdell or at least the limits are easy to get around. OTOH, the limits are so high that a family would not be doing the right thing to exceed the limits.
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Old 09-20-2019, 07:46 AM   #6
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No requirement to stay in state. WA's 529 is a bit different. For those interested read this.

It got silly the past couple years with the state legislature reducing tuition... We'll see what the future holds.

Yeah, the coverdell limits prevent it from being a single source of funding, but it might be just enough to cover most of the room and board.

I hadn't seen the vanguard page on their suggested AA plan. I'm thinking I'll use the moderate risk plan with VOO and BND

Thanks All.

--At what age does spending less now in order to have more later stop making sense?
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