Interesting 529 question from a family member - WWYD?

[disneysteve]

I have a family member with 5 children. Child #1 is in college now. They have exhausted the fixed income assets in her 529 but don't really want to dip into the equity assets right now while the market is down. The 4 younger kids have 529 accounts too. They have the ability to move funds between the 5 accounts with no fees or penalties.

Does it make sense to move some of the equity funds from child #1's account into the account of one of the younger kids who is multiple years away from college in order to give that money more time to recover? In turn, move some of the fixed income funds from the younger kid into the account of the college student to pay current expenses.

I can't think of any good reason not to do this.

[kork13]

Seems pretty reasonable, as long as the funds can be transferred in-kind between accounts. Might defeat the purpose somewhat if they have to sell the funds, transfer cash between accounts, then re-buy.

Does the 529 administrator (or IRS) allow for transfers that are net-zero like this?

[ua_guy]

Seems legit to me, as long as it can be done without penalty or other issues. The way I see it, the parents aren't contributing to each individual kid. It's a pot of money for all the kids. And maybe not all the kids will go to school or maybe they bring in money via scholarships or other means. Makes sense to maximize the value of those funds for the kid who needs it now.

[Petunia 100]

You know, if they sell equities/buy bonds in the oldest child's account then sell the same amount of bonds/buy equities in the youngest child's account, that's a wash. (Assuming that you are looking at it as one pot of money). It's simpler than transferring assets back and forth and you end up in the exact same place.

[disneysteve]

You know, if they sell equities/buy bonds in the oldest child's account then sell the same amount of bonds/buy equities in the youngest child's account, that's a wash. (Assuming that you are looking at it as one pot of money). It's simpler than transferring assets back and forth and you end up in the exact same place.

Great point. I hadn’t thought of that. I will definitely suggest that.

[Fishindude77]

Really need to look at the big picture. Is there enough money invested and still being contributed to fund the education needs / desires of all the children? This is kind of a red flag, since running into issues with child #1 already.
If there is a shortfall, moving money around might only be a short term fix.

It might be prudent to start looking at other methods of funding education such as; scholarships, military service, kids paying part, cheaper institutions, etc.

[disneysteve]

Really need to look at the big picture. Is there enough money invested and still being contributed to fund the education needs / desires of all the children? This is kind of a red flag, since running into issues with child #1 already.
If there is a shortfall, moving money around might only be a short term fix.

There's not a shortfall. It's just an asset allocation question. Should they sell equities now while the market is down or sell fixed income holdings and give the equities time to recover?