ABCs of 529s

As the costs associated with higher education continue to increase, saving for college continues to become an increasingly daunting task. With college education expenses increasing at a rate close to 6% annually, it is important to start saving as early as possible. When determining where to begin your savings, we typically recommend using a Qualified Tuition Plan, also referred to as a 529 plan.


We recommend 529 plans because the plans are tax-advantaged investment vehicles specifically designed for expenses associated with higher education. The main benefits are that the investment returns are tax-deferred, and withdrawals are generally not subject to federal or state income tax when used for qualified education expenses. Qualified education expenses include items such as: tuition, room & board, books, and computer equipment. Many states also offer income tax deductions or credits to residents who contribute to in-state 529 plans.


529 plans are also and effective estate planning vehicle. An individual can gift assets to relatives or close family friends, and remove the assets from their estate. In addition, there is a provision in the law which allows contributors to front-load five years’ worth of gifts, effectively providing a way for married couples to shift $140,000 of assets out of their estate (provided there are no additional gifts to the beneficiary within that five year period).

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Portfolio Rebalancing

One of our investment management philosophies has always been to rebalance portfolios when tactical opportunities present themselves. We monitor our investment portfolios relative to their intended asset class targets and believe the optimal rebalancing strategy is to trim positions that have done well and add to those which have lagged, bringing asset classes back to their intended targets. This vigilance forces us to sell when positions are high and buy when positions are low, which is part of a sound, long-term investment strategy.

As we approach year-end, we see some significant market dislocations which we believe create an opportunity to rebalance our portfolios. Additionally, we are navigating year-end mutual fund capital gains distributions and tactically harvesting losses in order to potentially reduce tax liabilities for our clients.

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