Need Help with 529 For Nephew

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Need Help with 529 For Nephew

Postby robocop » Sat Jan 26, 2013 9:45 pm

I will be opening a 529 for my nephew for his 3rd birthday shortly. It will probably receive contributions from a fair number of people- a little from grandparents on both sides, perhaps a little from his other aunt and uncle, and probably a decent amount from me and the parents of my nephew. Just to clarify, I am the one opening the account because my sister wanted her FA to do so, and I convinced her to let me do it to avoid the FA's fees on it.

The child's relatives are all in MN, with the exception of one set of grandparents (my parents, who are in WI), and me, who is in CA.

By the time my nephew reaches 18, I am guessing he will have enough to fund at least 1 year of school, and possibly much more (depending on how much his parents and I are able and willing to contribute).

Because I am opening the account, I am looking at a plan that allows ownership changes. I have been reading that a non-parent-owned 529 can actually hurt FAFSA if it isn't withdrawn solely for the senior year of education, because the contributions from the previous year reduce aid eligibility by 50%. Thus, because I am unsure exactly how much his parents and I will contribute, I want the maximum flexibility on the account so that we don't harm his eligibility for Stafford loans.

Right now, I am considering the WI plan because it has relatively low costs and would enable his WI grandparents to deduct any contributions they make to his 529. CA and MN don't have any deductions, and have higher costs.

My questions about this are:

1. Does my strategy of making sure account ownership can be changed sound correct? This info. about how 529s are treated on FAFSA is all new to me, so I'd like a second look.
2. If it is expected that the money will probably be used in 15 years, would a 60% US index equity, 40% bond index portfolio be appropriate? Unfortunately, there is no international index option in WI's plan. If this is too conservative/aggressive, what would be an appropriate AA?
3. Are there other plans I should consider? I've looked and didn't find any, but I might have missed some.
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Re: Need Help with 529 For Nephew

Postby letsgobobby » Sun Jan 27, 2013 2:19 am

I don't know about the WI plan, but you want to weigh the probably small benefit of one set of grandparents getting a tax deduction vs the ongoing benefit of getting the lowest fees you can find. I read that NY has expenses of 17 basis points on every fund, which is very cheap. I don't know if that is actually true.

60/40 seems conservative for three years old, but in a thread I started two months ago, we learned there is no consensus about 529 asset allocation, unlike retirement:


As for ownership, can you open it now but transfer to your sister in just a year or five? That is what we did for our niece. The impact on financial aid today may not matter in fifteen years because the rules may change, but the reason for the impact for a non parent owned 529 is because the distributions will count as income to the student beneficiary (reducing by up to 50% any aid, although up to $6000 is not counted) rather than as a parental asset of which only 5.6% would be required toward EFC.
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