Where to park cash for 3-5 years that might (or might not) be needed for college?
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Anonymous
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We have 2 DCs, one is a sophomore and the other is in 8th grade. We live in VA and have a VA 529 for each of them. They're invested in target date funds, and we're on track to have enough for in-state expenses (specifically, we'll be probably just shy of $200,000 for each of them).
We also have about an additional $200,000 total that we've had in a high-yield savings account for a couple of years with the thinking it can help fill gaps if one or both of them end up going out of state. This has seemed like a reasonable way to invest that money because rates have been high, and it's maintained flexibility in case we decide we need cash for other expenses. However, with college coming closer, we're leaning toward keeping this earmarked for college. With rates beginning to decline, what would you do with that cash for the next few years? Options are to put it into the 529s in a stable market fund, which wouldn't earn more than where it currently is, but has the tax benefits (BUT also associated penalties if they both go in-state and we don't use the money for college). Or, leave the money were it is and just accept lower returns and higher taxes on the earnings. Or, is there some third option I'm not considering? |
Anonymous
| OP here again. I'm wondering if treasuries might be a good option. We don't currently hold any. Welcome thoughts on this. |
Anonymous
Yeah the simplest play for now is to put in a Treasury money market. Stays liquid, earn 3.9%, interest is state tax free. |
Anonymous
Agreed. I certainly wouldn't put it in the 529 until you know if you need it. |
Anonymous
| Sounds like it might be a toss up whether you will need the money for college expenses. I would probably lean towards keeping all or most of it in a taxable account, maybe a balanced fund that has a mix of stocks/bonds that you are comfortable with. |
Anonymous
OP here. Help me out here, as I'm a little dense on financial matters, that's why I tend to just go with the target date funds for retirement and college and park the rest in a savings account. I've never owned treasures, but wouldn't it be better to buy them directly than to do a Treasury money market? Isn't the rate locked in for the former, but not the latter? Please correct me if I'm wrong. |
Anonymous
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Keep the money in savings account. There is no reason to complicate life for extra 0.5% now.
You already have too much in 529. That $200k could have been invested in VOO in regular investment account from the start. You could have survived three downturns: 2020 March/April, 2022, and the next one before college even starts. Then you have another 4-6 years. |
Anonymous
Yes you can buy Treasuries directly and yes you lock in the rate if you do so, and you don't in a money market. But doing it in a money market is easier (because you can just do it with Vanguard/Fidelity/whoever), and you can liquidate within 1 day if needed. |
Anonymous
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One thing to make sure of, if you buy an ETF or mutual fund, is that they break out the interest that is exempt from state and local taxes on the 1099.
I have been wrong sided by this before so now I always buy the actual treasuries when I want to park money for a few months. |