Continue contributing to 529?

[sdcarwile]

Last year I decided to open a 529 for my 2 "younger" boys. I have an older one already in high school and I knew it was too late for that. However I'm starting to wonder if it was too late for my middle son who is now in 8th grade. Now, we are not talking a lot of money here but I make a small monthly deposit every month. I know talking about investing you have to think "long term" but he is 5 years away from graduating and not sure if I've made a mistake to open something with that short of time frame.

I realize stocks are down and I'm not that concerned with our retirement fund or my younger sons acct who is a 5th grader but I've contributed $1430 to my older sons and it is now $1249. Again I realize we are not talking tens of thousands of dollars but should I continue to put in to my middle sons acct or save another way? Will I eventually see any growth I wonder in his acct for the next 5 years?

Another forum I read people talk about how people that continue to throw money into stocks are stupid but here it seems people are not bothered by it.

[GrowingTheGreen]

One thing that you need to consider is asset allocation. Typically, something 5 years off is too soon to invest in stocks. Bonds are a better choice. For your HS child, even contributing to a lower-yield cash account would be acceptable.

Don't ignore the tax benefits of a 529. Even if you're earning a measly 1% on the investment, you'll still reap large benefits in the form of tax savings.

Stocks are a solid vehicle that should be used for goals that are further away. They aren't stupid.

[sdcarwile]

Thanks for the reply! I do save some for my oldest, but its just in a regular online savings account I think earning .75%. I'm beginning to think I should have just kept my middle sons the same way. He def. has stocks in his. Should I continue to save for my middle son a different way instead of putting money in his 529? I've had the account for exactly 1 year. Do I just let that account "sit" and save money another way? I realize now that 5 years is too short for his stocks account. (I actually set this up with a "financial advisor" and put it in aggressive accounts. I wish I had researched myself that this was a bad idea)

And yes! Turning in my contributions for the State of IL tax savings!

[disneysteve]

Last year I decided to open a 529 for my 2 "younger" boys. I have an older one already in high school and I knew it was too late for that. However I'm starting to wonder if it was too late for my middle son who is now in 8th grade. Now, we are not talking a lot of money here but I make a small monthly deposit every month. I know talking about investing you have to think "long term" but he is 5 years away from graduating and not sure if I've made a mistake to open something with that short of time frame.

A 529 is just a type of account, just like a 401k or Roth IRA. What matters is what investments you choose in that account.

You can choose to be as conservative or aggressive as you'd like within the 529. With only 5 years until graduation, you probably want to be pretty conservative with only a modest stock exposure, maybe 20% or so, and the rest in conservative investments.

So keep funding the 529 for the tax benefit. Just choose more conservative investments.

[sdcarwile]

So I should probably switch to conservative now? Is there any hope on recouping at least to what i've put in it I wonder?

[GrowingTheGreen]

Nobody knows. The best way to do it is to do it regularly over a set amount of time. Over the next 12 months, start moving 1/12th of the amount in stocks over to bonds every month.

[creditcardfree]

Nobody knows. The best way to do it is to do it regularly over a set amount of time. Over the next 12 months, start moving 1/12th of the amount in stocks over to bonds every month.

Good advice! Could also do every month for six months...or spread it out longer than 12.

[disneysteve]

So I should probably switch to conservative now? Is there any hope on recouping at least to what i've put in it I wonder?

What I did was stopped adding to the equity portfolio and directed new money to the conservative portfolio. So over time, that shifted the allocation more conservative while still maintaining stock exposure.

[snafu]

sdcarwile, I'm a tiny voice, far away offering a contrarian point of view. I've no idea what specific stocks are held in the 529 you chose, your instruction to the advisor, or your level of understanding about how this all works.

1st, the point is to buy low and sell high. I don't agree it's in your interest to DCA [Dollar Cost Average] higher and higher and sell lower and lower. As I see it, the American economy compared to others is the strongest, unemployment is low, interest rates are low, USD is high, the world is in flux and emotional investors are looking for safety.

2nd, five years is a tight horizon but it's typical of money gyration. I see it as the stock market 'on sale'. Emotion and uncertainty are driving values lower. We who kept our heads down and continued with our financial plan 2008 - 2012 are up somewhere near 35%.

3rd, I suspect your advisor over reached wanting to give DS#2 better figures since dad was late to the game. He couldn't have possibly guessed Trump's statements or the release of Iran's billions [for example]. DS#2 may need to borrow some, choose a less expensive school, apply for every award, scholarship and bursary he can vaguely qualify, begin at a 2 year college choosing courses carefully so they fully transfer to a 4 year institution or [horrors] work one year gaining maturity but interrupting the flow. The 529 is good for every year enrolled.

4th, understand if interest rates go up, bond funds go down and there is pressure to raise rates. Who do you think will be President in 1921? What changes will be wrought in education funding?

[Jluke]

Another forum I read people talk about how people that continue to throw money into stocks are stupid but here it seems people are not bothered by it.

Not sure which is "better"... throwing money into stocks on the way up or on the way down.

For your situation, keep your initial investment as is (call it the risky allocation), and as others have said, then direct future contributions to something that may be more within your tolerance.

As far as the 5 year situation, really you have around 5-9 years for your son's college career.

[creditcardfree]

As far as the 5 year situation, really you have around 5-9 years for your son's college career.

This is true. The money saved doesn't need to be taken out the first year. In fact scholarships are often granted more to freshmen than upperclassmen. We have used our daughter's fund for first year housing costs and then will use the remainder in her final year in school, over two years away, because we have a military benefit we are likely to use for years two and three.

[disneysteve]

As far as the 5 year situation, really you have around 5-9 years for your son's college career.

This is true. The money saved doesn't need to be taken out the first year.

Definitely. Our daughter is in her 2nd year. We used 529 money for the first and second years and will use what remains for the third year. So your timeline isn't really 5 years.

[sdcarwile]

Thanks everyone! His account his in an age based portfolio. Right now his is in the 13-16 category so its slightly more conservative than his brothers. You are right about the 2 year community college. I've already told my kids they will have to start out there and there is a good chance out of my 3 boys my middle will qualify for some sort of scholarship, at least to there, so we would have 5-7 years for his account.

[moneybags]

And yes! Turning in my contributions for the State of IL tax savings!

This earns you 3.75%! When you're kids are in college, you can deposit and withdraw in the same year and earn 3.75% on your money with this tax credit. I think other states have credits too.