529 Savings Plan Question
Dear Terry I have recently "found" your website and appreciate your sage advice. I have recently returned to the US after considerable time overseas. I have a been able to save a decent amount of cash for my children's college funds. With my two children just 5 and 7 years away from starting college, does it make sense to put the funds into a 529? I am concerned about the "short" window until the funds will be needed. Secondly, does one open one account per child or pool the monies into one account? Thank you for your help!
Terry Says
It's fine to open just one 529 account, since the money can be used for either child. The other question is a bit harder to answer. We are at the "tail end" (I think) of a great bull market. The idea of investing for the long run is a good one -- but in this case, your "long run" is just ten years! And you have very little flexibility when you invest inside a 529 plan. Even the "age-based" plans are designed to be pretty aggressive to build money on a tax-free basis. I'd be a bit hesitant about putting too much money into a 529 plan at this stage of the market and your children's lives. How about keeping half in a money market or similar safe savings account? That way, if you do run into a bar market you can ride it out and use most of the money for the second child's last two years of college. That stretches out your holding period -- and the likelihood of making gains -- with the portion you do invest. And it lessens the likelihood that you'll have to sell during a down market. BUT -- don't put the money into a custodial account for either child. That counts far more heavily against you ultimately n the financial aid formula.
