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Preservation of assets 529
Old 07-04-2022, 04:08 PM   #1
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Preservation of assets 529

I have My529 accounts for grandchildren. The value has gone down with the market.


I have one more opportunity to change investments. My529 groups the following as Static Investment Options and Customized Investment Options. Not sure of the difference. In the former group FDIC-Insured (0.28% YTD), or Stable Value (0.65% YTD). In the latter I am considering Short-Term Inflation-Protected Sec Index (0.01% YTD), FDIC Insured Portfolio (0.27% YTD), Stable value (0.64% YTD). These are the only investments that haven't lost $ this year. Results as of the end of May.

Forum members.. what would you choose?
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Old 07-04-2022, 05:25 PM   #2
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How old are your grandchildren?
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Old 07-04-2022, 05:33 PM   #3
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Two are entering high school, the other a 10th grader.
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Old 07-04-2022, 09:17 PM   #4
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With those ages, I would lock in the money for the 10th grader in the Stable Value and not worry about it.

For the younger ones, consider locking in their first 2 years of college expenses in the Stable Value. That is 6 years out, and if the past is any guide, we'll be through this by that time.

I am taking that approach with my 2 kids - take the risk out for the money needed in less than 5-6 years, keep the remainder in equities, and reduce the equity exposure each year.

I looked at that UT plan and was stunned at the YTD losses for "enrolled" students. Digging deeper, the equity market exposure and interest rate risk in their Target fund for that cohort doesn't seem prudent to me. See page 8 of this https://my529.org/wp-content/uploads...escription.pdf. I was surprised they did not explicitly list the YTD return for the Pimco Interest Income Fund, which is a big component of that Target fund. Took some digging, but was able to find that is sole underlying investment in the Stable Value option.
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Old 07-05-2022, 08:47 AM   #5
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With those ages, I would lock in the money for the 10th grader in the Stable Value and not worry about it.



For the younger ones, consider locking in their first 2 years of college expenses in the Stable Value. That is 6 years out, and if the past is any guide, we'll be through this by that time.



I am taking that approach with my 2 kids - take the risk out for the money needed in less than 5-6 years, keep the remainder in equities, and reduce the equity exposure each year.



I looked at that UT plan and was stunned at the YTD losses for "enrolled" students. Digging deeper, the equity market exposure and interest rate risk in their Target fund for that cohort doesn't seem prudent to me. See page 8 of this https://my529.org/wp-content/uploads...escription.pdf. I was surprised they did not explicitly list the YTD return for the Pimco Interest Income Fund, which is a big component of that Target fund. Took some digging, but was able to find that is sole underlying investment in the Stable Value option.


I agree a mix of SV and equity makes sense. Id be inclined to be a bit more aggressive. Perhaps, a couple years for the older one in SV, and the rest in equity. Id be surprised if equity doesnt do better than SV over a four year horizon.
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Old 07-05-2022, 11:13 AM   #6
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I was shocked at the return for the enrolled student's funds as well. If I were structuring those funds at least 80% would be in the funds I listed.

My plan is to change the investments for my grandchildren for the rest of the year and then re-evaluate in January. I am an aggressive investor but do not hesitate to retrench when the need indicates.

All of the 529s I have considered only allow changes in investments twice a year.
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Old 07-05-2022, 01:55 PM   #7
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My plan is to change the investments for my grandchildren for the rest of the year and then re-evaluate in January. I am an aggressive investor but do not hesitate to retrench when the need indicates.

All of the 529s I have considered only allow changes in investments twice a year.
This may not work for you, but I've found a trick with 529s that helps.

My 529 plan, like yours, only allows twice a year changes in investment allocations.

But, I have three children, each of whom has a 529. And my 529 plan allows unlimited transfers between their 529s - daily if I want to.

So I just set up one kid's accounts with 100% bonds, and another kid with 100% stocks, and the third kid might be at 60/40 or whatever happens to be convenient for their official 529 account AAs.

The trick is, by moving money between the three accounts, I can achieve a 37.286% stock allocation, or whatever I want. And I can reallocate whenever I want if it gets out of balance a bit.

Yes, this might mean that $3,112.47 of little John's stocks are in little Jane's account, and $431.22 of little Jane's bonds are in little Joe's account at the moment. But as long as the balances are approximately correct (so I can make distributions from the proper account), this works just fine for me.
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Old 07-07-2022, 08:38 PM   #8
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Looked at expense ratio of Fidelity 529 funds today. Too high for me - 0.5 for anything other than MM, SV or Bank rate. Vanguard had better choices. Transferred to FIDO for simplicity, but we paid for it
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Old 07-09-2022, 12:27 PM   #9
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Looked at expense ratio of Fidelity 529 funds today. Too high for me - 0.5 for anything other than MM, SV or Bank rate. Vanguard had better choices. Transferred to FIDO for simplicity, but we paid for it
The 0.5% you are seeing is for the actively managed fund portfolios. If you look at the index fund portfolios the cost is anywhere between 0.15% and 0.11%.

But you should look into the Utah My529 plan. They have very low costs. (At least they did when I had my kids' 529 plans there. Just finally emptied the last one early last year).
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Old 07-09-2022, 02:29 PM   #10
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Anyone in PA should also check out the Pennsylvania Guaranteed Savings Program. It indexes your gains to college inflation.

It has some pros & cons -- and the "Guarantee" is a bit mis-leading -- but overall we've been really happy that we have our kids money in that vehicle.
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Old 07-09-2022, 03:23 PM   #11
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(so I can make distributions from the proper account), this works just fine for me.
Not sure whether to start a new thread or risk being a thread pirate........ but here goes.....

Where do you choose to have the 1099Q's sent? To you as the account owner or to your kids/grandkids, the beneficiaries?
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Old 07-09-2022, 03:35 PM   #12
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Two are entering high school, the other a 10th grader.
I wouldn't go too conservative too soon. I think we'll see significant recovery within 3 - 4 years. Of course, you have to use your own judgment on that!

Remember, your 10th grader has 3 years before distributions start and 6 years before they end.

The other 2 have distributions starting 4 years from now and ending 8 years from now.

529b and ESA accounts are great! Our 3 grandkids will attend college using funds that are more than half earnings and tax breaks from those accounts.
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Old 07-09-2022, 04:07 PM   #13
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Not sure whether to start a new thread or risk being a thread pirate........ but here goes.....

Where do you choose to have the 1099Q's sent? To you as the account owner or to your kids, the beneficiaries?


Not your choice. If the beneficiary or the school received the payment, its issued to the beneficiary. If the owner received the payment, he/she gets it.
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Old 07-09-2022, 04:17 PM   #14
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Not your choice. If the beneficiary or the school received the payment, it’s issued to the beneficiary. If the owner received the payment, he/she gets it.
I seemed to have a choice. If I had it sent to the beneficiary (must be via snail mail, not electronically to a bank account) or to the school, then the beneficiary got the 1099Q. If I had the withdrawal sent to me, then I got the 1099Q.

I am curious what circumstances would make it better for me to receive the 1099Q rather than my grand daughter. I figured because she gets the 1098T and it's up to her to keep receipts for qualified expenses, she should get the 1099Q. But I don't know anything about this kind of stuff.
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Old 07-09-2022, 05:08 PM   #15
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Where do you choose to have the 1099Q's sent? To you as the account owner or to your kids/grandkids, the beneficiaries?
Here's how I and my state do things:

1. I always have the money sent directly to me. Almost always this is after paying a 529 qualified expense, like a fall tuition bill or whatever. So I follow the pay then reimburse model.

2. My state 529 issues the 1099-Q to me in my name and my SSN, but they mark box 6 to show that I'm not the beneficiary of the account.

3. I report any taxable 529 effects on the kids' tax returns based on my reading of the IRS Pub 970 instructions.

So far, I have not had any criticisms from the IRS.

My 529 does allow me to send the money to my kid or to my kids' university. As noted above, I have not done either of those options. Those payees might result in a 1099-Q that looks different.
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Old 07-09-2022, 05:43 PM   #16
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Here's how I and my state do things:

1. I always have the money sent directly to me. Almost always this is after paying a 529 qualified expense, like a fall tuition bill or whatever. So I follow the pay then reimburse model.

2. My state 529 issues the 1099-Q to me in my name and my SSN, but they mark box 6 to show that I'm not the beneficiary of the account.

3. I report any taxable 529 effects on the kids' tax returns based on my reading of the IRS Pub 970 instructions.

So far, I have not had any criticisms from the IRS.

My 529 does allow me to send the money to my kid or to my kids' university. As noted above, I have not done either of those options. Those payees might result in a 1099-Q that looks different.
Thanks!

So far, I've chosen to have withdrawals sent to my granddaughter at her home address. Then she also gets the 1099-Q and incorporates it into her income taxes.

My thinking was that if the IRS ever wants to see backup for the expenses proving all withdrawals were "qualified," that would be up to granddaughter and her parents (my DS and DIL). We have a great family relationship except when I push them about keeping records, watching financial details, etc. I generally get some push-back. So, I would never want to put myself in a position where I'm nagging them for receipts, spending records, etc. With the 1099-Q going to my granddaughter, I'm out of the loop. Plus granddaughter is the one who gets the 1098T.

Does this make sense to you or am I missing out on some advantage by not getting the 1099-Q myself?

Obviously a difference between our situations is that I'm a grandparent account owner and you are a parent account owner with more direct control.

I've got two more grandkids following along with 529b funds awaiting them so I'd like to get my strategy in place.
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Old 07-09-2022, 06:41 PM   #17
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Thanks!

So far, I've chosen to have withdrawals sent to my granddaughter at her home address. Then she also gets the 1099-Q and incorporates it into her income taxes.

My thinking was that if the IRS ever wants to see backup for the expenses proving all withdrawals were "qualified," that would be up to granddaughter and her parents (my DS and DIL). We have a great family relationship except when I push them about keeping records, watching financial details, etc. I generally get some push-back. So, I would never want to put myself in a position where I'm nagging them for receipts, spending records, etc. With the 1099-Q going to my granddaughter, I'm out of the loop. Plus granddaughter is the one who gets the 1098T.

Does this make sense to you or am I missing out on some advantage by not getting the 1099-Q myself?

Obviously a difference between our situations is that I'm a grandparent account owner and you are a parent account owner with more direct control.

I've got two more grandkids following along with 529b funds awaiting them so I'd like to get my strategy in place.
Since the distributions and 1099-Q is going to your granddaughter, I'm assuming that it also has her name and SSN on it.

Since the 1099-Q is reflecting a potentially taxable distribution, my view would be that it would be important for the named person to make sure that the taxation is properly handled, since the IRS is going to ask that person if there is ever a question.

So in this case, assuming your granddaughter's SSN is on the 1099-Q, it'll be up to her to explain/defend if the IRS questions or audits.

Since you've already lectured her and her parents on recordkeeping, and they're all adults or nearly so, I think your situation works just fine from a taxation perspective.

The only other thought I had was since it sounds like you're the 529 custodian and it's probably originally your money, there is a small chance your granddaughter is receiving the withdrawals but not spending them on qualified educational expenses and is instead spending it on boyfriends or alcohol or parties. I'm not saying this is the case, but it could happen. It would still be her problem with the IRS, but you might not be happy if she's not doing what you expect her to be doing with the funds. You know your granddaughter, so you probably have an idea of how likely this might be.

HTH.
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Old 07-10-2022, 12:40 PM   #18
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Since the distributions and 1099-Q is going to your granddaughter, I'm assuming that it also has her name and SSN on it.
Yes
Quote:

Since the 1099-Q is reflecting a potentially taxable distribution, my view would be that it would be important for the named person to make sure that the taxation is properly handled, since the IRS is going to ask that person if there is ever a question.

So in this case, assuming your granddaughter's SSN is on the 1099-Q, it'll be up to her to explain/defend if the IRS questions or audits.

Since you've already lectured her and her parents on recordkeeping, and they're all adults or nearly so, I think your situation works just fine from a taxation perspective.
Good. I know you work hard at understanding details and I appreciate your thoughts. As I mentioned earlier, because this is my granddaughter, I don't have the specific control I'd have if she was my daughter. So, I'm just thinking that putting the burden of record keeping for the IRS on her and her parents would save me from having to nag them about it to protect myself.
Quote:

The only other thought I had was since it sounds like you're the 529 custodian and it's probably originally your money, there is a small chance your granddaughter is receiving the withdrawals but not spending them on qualified educational expenses and is instead spending it on boyfriends or alcohol or parties. I'm not saying this is the case, but it could happen. It would still be her problem with the IRS, but you might not be happy if she's not doing what you expect her to be doing with the funds. You know your granddaughter, so you probably have an idea of how likely this might be.
Yes, I'm the owner of the account and my granddaughter is the beneficiary. I've done 100% of the funding and received 100% of the tax benefits. (Illinois lets me deduct the 529b contributions from my Illinois taxes saving me 5% every year.) And I can pay for all of her qualified educational expenses with funds that are substantially earnings on my contributions and are tax free. I've been very pleased with both the ESA and 529b plans.

I understand you mentioning the possibility of the money being misused. Fortunately, that's an extremely low probability, or so it seems from where I'm sitting. She's at a competitive engineering school and getting good grades (which she sends me every semester). And we communicate frequently via texts, email, FaceTime, etc.

Thanks for your inputs.
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