Help needed:Correct way for 529

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darkhorse
Posts: 98
Joined: Mon Dec 17, 2012 4:13 pm

Help needed:Correct way for 529

Post by darkhorse » Fri Aug 17, 2018 1:41 am

Dear fellow bogleheads,

I ve narrowed down to NY 529 plan. I would like to do monthly contribution to 529 plan for each of my 3 kida.

I already ve 2 set up with kids name 1 year ago and I ve been makimg monthly contributions. While I was about to open third one, it got me thinking should I just open it on my name as

1. Does it matter if I open 529 for me vs kids name as far as their prospect for superficial aid etc

2. If it does matter, can I change two that I already have opened to my name or i should stop contributing to those and combine total contribution and do it in one account under my name.

Many thanks,


P S
I am in state that doesn't offer any incentive for 529

PFInterest
Posts: 2623
Joined: Sun Jan 08, 2017 12:25 pm

Re: Help needed:Correct way for 529

Post by PFInterest » Fri Aug 17, 2018 6:03 am

529s owned by the child or parent count against financial aid. non-custodial parents dont.
you can change the name on any 529 at any time.

RickBoglehead
Posts: 1002
Joined: Wed Feb 14, 2018 9:10 am

Re: Help needed:Correct way for 529

Post by RickBoglehead » Fri Aug 17, 2018 7:28 am

A 529 account has an owner and a beneficiary. They can both be you, and then you change the beneficiary later.

We had two 529s for our kids. After they completed their college education, we removed them as beneficiaries and put me. We intend these accounts to be for future grandchildren, and will change beneficiaries and owners if need be when it is needed.

Spirit Rider
Posts: 8941
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help needed:Correct way for 529

Post by Spirit Rider » Fri Aug 17, 2018 7:30 am

A 529 has an owner and a beneficiary

Parental or student owned 529 plans are both treated as parental assets when completeing the FAFSA. Parental assets are assessed at a maximum rate of 5.64% for Expected Family Contribution (EFC). Distributions are not counted as income.

Third-party(grandparents, etc...) owned 529 plans are not considered parental or student assets and are not reported in the FAFSA. Distributions from such 529 plans are considered untaxed income of the student. A student's income is assessed at a minimum rate of 50% for the EFC.

However, starting with the 2017/18 school year. The FAFSA uses the prior prior year. This means third-party 529 plan distributions over the last 2 1/2 years are not reported on FAFSA..

You can only make tax-free distributions for qualified educational expenses of the beneficiary (student). You can name yourself as beneficiary, but must change it to the student before distributions are made.

You can change the 529 plan beneficiary to an enumerated list of family members. However, a beneficiary change to a lower generation is considered a new completed gift from the account owner to that new beneficiary.

Naming yourself as beneficiary would not reduce the FAFSA EFC. All 529 plans owned by the parents and children are considered parental assets. Also, gift tax reporting would be required after all the years of earnings increased the balance of the 529 plan(s).

darkhorse
Posts: 98
Joined: Mon Dec 17, 2012 4:13 pm

Re: Help needed:Correct way for 529

Post by darkhorse » Fri Aug 17, 2018 11:55 am

Thank you guys, that helps.

I intend to just keep beneficiary separate for each kid got now to see how much i ve got each of them.

Does limit apply per kid or total?

Thank you

Spirit Rider
Posts: 8941
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help needed:Correct way for 529

Post by Spirit Rider » Fri Aug 17, 2018 4:23 pm

darkhorse wrote:
Fri Aug 17, 2018 11:55 am
Does limit apply per kid or total?
Which limit?

There is a contribution balance limit for a specific beneficiary at a specific 529 state program. For example, you can not make contributions to any NH Fidelity Unique 529 plan for a specific beneficiary when the balance in all such plans reach $500K. The Vanguard Nevada 529 plan has a $370K limit. However you can contribute to more than one state's plan at the same time. So realistically there are no contribution limits.

The gift tax annual and five-year exclusion limits are per donor per donee. So you and your wife (or anyone else) could each make a $75K five-year 529 contribution for each child and not have to apply any of that against your/their gift/estate tax lifetime exclusion.

darkhorse
Posts: 98
Joined: Mon Dec 17, 2012 4:13 pm

Re: Help needed:Correct way for 529

Post by darkhorse » Fri Aug 17, 2018 8:55 pm

Thank you, I mistakenly thought 14k could be limit. I appreciate insights.

Spirit Rider
Posts: 8941
Joined: Fri Mar 02, 2007 2:39 pm

Re: Help needed:Correct way for 529

Post by Spirit Rider » Fri Aug 17, 2018 9:33 pm

There is an annual gift tax exclusion (2017 = $14K, 2018 = $15K), but there is a special 5-year lump sum option only available for 529 contributions. You do have to file a Form 709 to elect this treatment, but it does not get applied against your gift/estate tax lifetime exclusion.

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