Pondering belated 529 for niece and nephew
Pondering belated 529 for niece and nephew
I've gotten to know my niece (16yo) and nephew (11yo) in the past few years. I was adopted, and they're the children of my half sister with whom I was reunited after researching and finding my birth mother. That's a whole other story, so...
Among my nieces and nephews, it's apparent to me that these kids would benefit the most from some help from their uncle should they elect to pursue higher education. At this late stage though, anything I could squirrel away in a 529 would be enough for some supplies and other miscellaneous expenses, but that's it. By the time they enroll, my general finances would be theoretically in better shape, so that I could simply assist them from my general funds at that point.
BUT...should something happen to me in the intervening years, having 529's in place would at least give them some clear funds that are affirmatively earmarked for them, albeit in not a huge amount, but there regardless of what's going on with me by then.
In that case, I'd probably trickle in some contributions to the PA 529 plan, probably into a Vanguard age-specific fund.
So I hereby solicit your comments, cautions, and/or encouragements
Among my nieces and nephews, it's apparent to me that these kids would benefit the most from some help from their uncle should they elect to pursue higher education. At this late stage though, anything I could squirrel away in a 529 would be enough for some supplies and other miscellaneous expenses, but that's it. By the time they enroll, my general finances would be theoretically in better shape, so that I could simply assist them from my general funds at that point.
BUT...should something happen to me in the intervening years, having 529's in place would at least give them some clear funds that are affirmatively earmarked for them, albeit in not a huge amount, but there regardless of what's going on with me by then.
In that case, I'd probably trickle in some contributions to the PA 529 plan, probably into a Vanguard age-specific fund.
So I hereby solicit your comments, cautions, and/or encouragements
"I've been ionized, but I'm okay now." -Buckaroo Banzai
Re: Pondering belated 529 for niece and nephew
I would rather help them with your general funds when they need it. That's just me, though.
Last edited by Goal33 on Tue Jan 05, 2016 9:40 pm, edited 1 time in total.
- StormShadow
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Re: Pondering belated 529 for niece and nephew
Only 529's that are directly owned by the dependent student or their parents are included as assets when filing for FAFSA.Goal33 wrote:I would rather help them with your general funds when they need it. That's just me, though.
Also, if they actually "need" your help, they'll qualify for financial aid, and your 529 with them as beneficiary will hurt their financial aid package.
This 529 would still owned by the OP (uncle) and would not count.
http://www.savingforcollege.com/intro_t ... al-aid.php
Personally, I think 529's are a terrific way to help out. If you have the means and want to do so, I say go for it.
Re: Pondering belated 529 for niece and nephew
Thanks for the correction, I'll take that out of my original post.StormShadow wrote:Only 529's that are directly owned by the dependent student or their parents are included as assets when filing for FAFSA.Goal33 wrote:I would rather help them with your general funds when they need it. That's just me, though.
Also, if they actually "need" your help, they'll qualify for financial aid, and your 529 with them as beneficiary will hurt their financial aid package.
This 529 would still owned by the OP (uncle) and would not count.
http://www.savingforcollege.com/intro_t ... al-aid.php
Personally, I think 529's are a terrific way to help out. If you have the means and want to do so, I say go for it.
Re: Pondering belated 529 for niece and nephew
Thanks folks! I think I'll move ahead with the 529. The PA 529 provides access to Vanguard funds, and can be started with as little as $25.
"I've been ionized, but I'm okay now." -Buckaroo Banzai
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Re: Pondering belated 529 for niece and nephew
Careful with the use of a third party 529. What has been stated above is correct, but is not the whole story.
While a 529 owned by a third party such as an uncle is not considered either parental assets (assessed at a maximum of 5.64%) or student assets (assessed at 20%), distributions become untaxed income of the student (assessed at 50%). However, this would be the same as an other contributions towards educational expenses.
The way around this currently is to use third party 529 distributions only after the FAFSA for the senior year is completed. This is because you use the prior tax year for the FAFSA Expected Family Contribution (EFC).
Starting in the 2017/18 school the FAFSA will be calculated on the year two years prior. Also, you will be able to complete your FAFSA by October 1st of the prior year, instead of the current January 1st of the current year. Therefore, you will be able to use third party 529s starting after the FAFSA is completed for the junior year.
Now the bigger problem. ALL 529 assets naming the student as a beneficiary (including third parties such as grandparents and uncles) are considered in the CSS Profile. This profile is used by most private educational institutions and some public educational institutions. While the third party 529s can be useful as described above without affecting federal financial aid, they can seriously impact financial aid provided directly from these educational institutions.
Unfortunately, these things can be exceedingly complex.
While a 529 owned by a third party such as an uncle is not considered either parental assets (assessed at a maximum of 5.64%) or student assets (assessed at 20%), distributions become untaxed income of the student (assessed at 50%). However, this would be the same as an other contributions towards educational expenses.
The way around this currently is to use third party 529 distributions only after the FAFSA for the senior year is completed. This is because you use the prior tax year for the FAFSA Expected Family Contribution (EFC).
Starting in the 2017/18 school the FAFSA will be calculated on the year two years prior. Also, you will be able to complete your FAFSA by October 1st of the prior year, instead of the current January 1st of the current year. Therefore, you will be able to use third party 529s starting after the FAFSA is completed for the junior year.
Now the bigger problem. ALL 529 assets naming the student as a beneficiary (including third parties such as grandparents and uncles) are considered in the CSS Profile. This profile is used by most private educational institutions and some public educational institutions. While the third party 529s can be useful as described above without affecting federal financial aid, they can seriously impact financial aid provided directly from these educational institutions.
Unfortunately, these things can be exceedingly complex.
Re: Pondering belated 529 for niece and nephew
Yes, that jibes with what I've subsequently been reading. Deferring distributions until Junior Year actually works out fine, in that I'm already getting a late start, especially for the 16yo.
My goal is for a net reduction in liability, however modest. My parents were shrewd and generous enough, that of all the challenges I had in college, how to pay for it wasn't among them. I'd like to pay that least a little bit forward.
My goal is for a net reduction in liability, however modest. My parents were shrewd and generous enough, that of all the challenges I had in college, how to pay for it wasn't among them. I'd like to pay that least a little bit forward.
"I've been ionized, but I'm okay now." -Buckaroo Banzai
- StormShadow
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Re: Pondering belated 529 for niece and nephew
If you're in Pennsylvania, you get a tax break regardless of which state's 529 you contribute to.dougger5 wrote:Thanks folks! I think I'll move ahead with the 529. The PA 529 provides access to Vanguard funds, and can be started with as little as $25.
Also, the PA 529 fund costs $15 to start.
We are in a tax parity state, and chose Utah because it is free to start up and also has Vanguard funds. I believe Utah's funds had slightly lower ER's. More importantly, the Utah 529 has also remained relatively consistent with their policies over the years. They are always ranked among the best.
Re: Pondering belated 529 for niece and nephew
Good to know. Thanks!StormShadow wrote:If you're in Pennsylvania, you get a tax break regardless of which state's 529 you contribute to.
Also, the PA 529 fund costs $15 to start.
We are in a tax parity state, and chose Utah because it is free to start up and also has Vanguard funds. I believe Utah's funds had slightly lower ER's. More importantly, the Utah 529 has also remained relatively consistent with their policies over the years. They are always ranked among the best.
"I've been ionized, but I'm okay now." -Buckaroo Banzai
Re: Pondering belated 529 for niece and nephew
If you're talking small amounts, it's not worth the bother. You might assume 20% gains in a few years for the older child or 100% for younger one. After adjusting for financial aid reduction, most of the tax benefit will be a wash. And that's not taking into account the market risk or risk of child not attending college. The last year usage is best, but what if they want to continue grad school or professional school?
So, either contribute a larger amount, or just keep it simple.
So, either contribute a larger amount, or just keep it simple.