“The recent huge run up in stock market recently has added tens of thousand of dollars to the 529 balances but who knows what will happen in the future.”: I have significant gains in my 529 plan. Should I adjust my asset allocation for future contributions?

Hi Money Minder,

Hey there! I need your advice on a money dilemma I’m facing. Here are the facts:
1. My college freshman kid’s education costs are estimated at $300k, with $50k already paid in cash.
2. My high school junior kid’s future education costs could be around $300k.
3. I currently have $441k in cash.
4. There’s $268k in the 529 plans.
5. The 529 plans have been 100% invested in equity for over 16 years.
6. I contribute $5,000 annually to each 529 plan.
7. The current balance in the 529 plans is 37% principal and 63% earnings.

The recent stock market surge has boosted the 529 balances, but who knows what will happen next.

I know I’m holding a large amount in cash, so please don’t focus on that. Here are my questions:
1. Should I change my asset allocation for the existing funds and future contributions?
2. If yes, when and to what allocation? I’m thinking about moving all historical balances to the 529 “money market” and still investing future contributions.

I’ve been paying for my kid’s education in cash so far, when should I start using the 529 funds? And if I end up with extra funds, should they be in cash or in the 529 residuals?

What other questions should I be asking, and what are the answers to those questions?

Thanks for your help!

Seeking Advice

Farewell,

Response from THE MONEY MINDER:

Hello There,

Congratulations on your proactive financial planning for your children’s college education. It’s clear you’ve put a lot of thought into saving for their future, and that’s commendable. Considering the various financial aspects you’ve outlined, here is a practical approach to address your concerns.

Given the uncertainty surrounding the stock market’s future performance, it might be wise to consider reallocating your current 529 plan balances to a more conservative option, such as a money market fund. This shift could help protect your current savings from potential market downturns while still allowing for growth through future contributions. Additionally, transitioning to a more conservative investment strategy for future contributions could provide a more stable foundation for your children’s college funds.

As for when to start using the 529 funds, it may be beneficial to assess your current cash flow and projected college expenses. If you anticipate having more funds than needed for your children’s education, you could prioritize using the 529 funds to cover tuition and related expenses. Any excess funds could then be allocated towards other financial goals or saved for future educational needs.

In terms of related questions to consider, it’s essential to evaluate your overall financial goals, risk tolerance, and potential tax implications of utilizing the 529 funds. Additionally, you may want to explore options for maximizing the college savings through additional investment vehicles or tax-saving strategies.

In conclusion, by adjusting your asset allocation, strategically utilizing 529 funds, and addressing related financial questions, you can take a proactive approach to secure your children’s college education while optimizing your financial resources. Remember, financial planning is a continuous process, so periodically reassessing and adjusting your strategy as needed is key to achieving your goals.

Farewell from THE MONEY MINDER.