Kids "sharing" a 529 account?

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bentley120
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Kids "sharing" a 529 account?

Post by bentley120 »

I am due with my second baby in November. My son will be 3 in December. They will be 3 years apart in school. We have a 529 set up for our son with a (little) pile of money in it.

Instead of opening a new account for our daughter, I am tempted to just fill up my son's account and change beneficiaries when my daughter starts school.

We are not planning to bank roll it all, we are just planning to contribute $200 or $300 per month to cover both children (nowhere near the 529 max). We fully expect to cash flow portions of their education, and encourage scholarships and discounts (working on campus, etc.)

Benefits to one account:
- One set of yearly fees (currently $10/year)
- One account to manage and track - since the $$ will be needed at essentially the same time.
- More flexibility if one child does not have college expenses (for one reason or another - scholarships, hopefully)

Risks:
- What if my husband and I die before the kids get to college? My son would get all the proceeds from this account.
- What if they make it harder to just switch beneficiaries?

What is the Boglehead feeling on this? What info am I missing with this line of thinking?
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hsv_climber
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Post by hsv_climber »

1. Find a 529 without an annual fee. Even $10/year is too much.

2. Depending on the rules 15 years from now, you might make it harder for the child with the big 529 $$ to get a financial assistance.

3. You are setting up yourself for a potential disaster for kids "fighting" over the same pot of money. I am sure you can train kids not to be that way, but it is better to remove the temptation.

Bottom line: I'd have 2 accounts (as I do have for my 2 sons).
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bentley120
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Post by bentley120 »

Thanks. I see what you are saying about the kids fighting over it, but my plan is to basically refer to the 529 as "college savings" and magically pay for college without the kids knowing the details on how the money is handled or managed.

I agree that $10/year is too much on my son's account. I have felt that way from the beginning. It is through American Funds and it was a "benefit" offered at my husband's old job (not sure what the benefit was - we paid $10 even when he worked there!)
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hsv_climber
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Post by hsv_climber »

- Here is the overview of 529 plans. So you might want to select a different plan and transfer money there:
http://www.savingforcollege.com/

- What if your oldest (or youngest) would want to go to a very expensive school? How would you explain him/her that you can't afford it? Or can afford it only if the other one would choose a different (cheaper) school?
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SSSS
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Post by SSSS »

bentley120 wrote:Thanks. I see what you are saying about the kids fighting over it, but my plan is to basically refer to the 529 as "college savings" and magically pay for college without the kids knowing the details on how the money is handled or managed.
Are 529 plans held in the parent's name or the child's name? Beware of accounts in the child's name; I have fond memories of turning 18 & raiding accounts that I theoretically didn't know about. "Hello, Mr. Banker. I believe you may have something that belongs to me. Now what are we going to do about that?"

Some kids intercept the household mail to look for underwear catalogs; I intercepted the mail to look for financial statements (also the catalogs).
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bentley120
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Post by bentley120 »

How would you explain him/her that you can't afford it? Or can afford it only if the other one would choose a different (cheaper) school?
I imagine we'd look into loans at that point - and pay them off before graduation. I don't foresee denying my children much of anything, particularly when it comes to education. This is a major reason we are stopping at 2 children.

We just maxed retirement, and I am trying to get a handle on the resulting budget without neglecting education savings - so for now $200/month is the 529 budget. That will change as time goes on, particularly after the mortgage is $0.
Are 529 plans held in the parent's name or the child's name? Beware of accounts in the child's name; I have fond memories of turning 18 & raiding accounts that I theoretically didn't know about. "Hello, Mr. Banker. I believe you may have something that belongs to me. Now what are we going to do about that?"

Some kids intercept the household mail to look for underwear catalogs; I intercepted the mail to look for financial statements (also the catalogs).
Ha! The 529's are in the parents name with 1 child as the beneficiary. The funds must be used for education - books, room & board, tuition.
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psteinx
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Post by psteinx »

I really don't like the idea of your entire 529 balance showing one child as beneficiary but not the other. Seems like real bad mojo, to maybe save $10 and a small amount of paperwork.
familyperson
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Post by familyperson »

At this age, it's not a big deal who the beneficiary is. Once the older child starts applying to colleges, though, you should split into two accounts so that the older child doesn't get credited with having so much savings vis-a-vis the financial aid form.
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Post by bentley120 »

I really don't like the idea of your entire 529 balance showing one child as beneficiary but not the other. Seems like real bad mojo, to maybe save $10 and a small amount of paperwork.
Fair enough - but I need a better reason than that!! :lol: It doesn't bother me at all - the account is owned by my husband, it's in his name - I don't consider it our children's money until they use it for school. If they don't use it for school, we aren't cashing it out for them, it will he transferred to someone else to use for school (me? husband? niece? etc.)

And $10/year for 18 years at 8% is almost $500... that'll buy at least 1 biology book in 2026! ANd maybe a college ruled notebook! :D
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bentley120
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Post by bentley120 »

At this age, it's not a big deal who the beneficiary is. Once the older child starts applying to colleges, though, you should split into two accounts so that the older child doesn't get credited with having so much savings vis-a-vis the financial aid form.
Nice - so I can do that?? Eventually split it apart into two accounts??? That sounds like a plan...
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JULIE
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Post by JULIE »

I'd look into the no yearly fee option. My 529 has a fee but waives it if you do automatic monthly contributions. See if you can get out of that.

Also, do you know if you get credit on your taxes for an in-state 529? That might actually help you make your decision to switch 529 providers.
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bentley120
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Post by bentley120 »

Also, do you know if you get credit on your taxes for an in-state 529? That might actually help you make your decision to switch 529 providers.
I don't know - how do I find out?? My husband does the taxes and I just asked him and he has no clue. We are in Virginia.
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BruceM
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Post by BruceM »

bentley120 wrote: Nice - so I can do that?? Eventually split it apart into two accounts??? That sounds like a plan...
If there were enough space between children's ages, I don't know of any rule that would prevent you from making qualified withdrawals to pay for the oldest child post secondary ed costs, and then changing the beneficiary to the second child. Never seen it done that way, but unless someone can point to a rule restricting this, it should work ok. The only catch I can think of is what happens if the older child wishes to use the $$ for grad school (assuming your state allows their 529 plan savings to be used for grad school)?

But then what happens if the account owner dies? This will depend on the state, but most states in my experience allow for a contingent successor owner who the original owner trusts to use the assets to pay for the child's education. If there is no such person, a UTMA/529 could be set up for the child beneficiary with a named adult custodian, usually a family member. And I believe that most states consider the age of majority for purposes of UTMAs as 21, which if this is true for your state, would prevent ownership and the temptation for non-qualified withdrawals to be made by the child-account owner until age 21. But in any case, if your intent is to use the plan for one child and then another, how would this get communicated to the successor owner? I'm not asking you, just posing questions you might want to ask yourself.

I suspect it would be administratively easier just to have two separate accounts. Oh, and be sure to put the guilt trip on your parents to contribute to the 529...or one they set up naming your children as beneficiaries. Our adult children have no problem doing this to us :-)

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bentley120
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Post by bentley120 »

I suspect it would be administratively easier just to have two separate accounts. Oh, and be sure to put the guilt trip on your parents to contribute to the 529...or one they set up naming your children as beneficiaries. Our adult children have no problem doing this to us


Ha! Good for you. My dad has a 529 for each grandchild, $50/month. He's a good man. :sharebeer
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555
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Post by 555 »

What are the expenses on these funds? They could be a lot more than that $10. Why don't you look at all the options for 529 plans and pick the best one? That's a more important choice than what you're asking about.
bentley120 wrote:I agree that $10/year is too much on my son's account. I have felt that way from the beginning. It is through American Funds and it was a "benefit" offered at my husband's old job (not sure what the benefit was - we paid $10 even when he worked there!)
familyperson
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Post by familyperson »

bentley120 wrote:
Also, do you know if you get credit on your taxes for an in-state 529? That might actually help you make your decision to switch 529 providers.
I don't know - how do I find out?? My husband does the taxes and I just asked him and he has no clue. We are in Virginia.
Hooray for Virginia: The 529 deduction can be taken on your state income taxes as up to "$4,000 per account per year (no limit age 70 and older), above the line exclusion from income, unlimited carryforward of excess contributions."
Martello Shores
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Post by Martello Shores »

Fidelity's has an American Express card that give 1 or 2% of purchases to 529. It adds up over the years.
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zblongladder
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Post by zblongladder »

SSSS wrote:
bentley120 wrote:Thanks. I see what you are saying about the kids fighting over it, but my plan is to basically refer to the 529 as "college savings" and magically pay for college without the kids knowing the details on how the money is handled or managed.
Are 529 plans held in the parent's name or the child's name? Beware of accounts in the child's name; I have fond memories of turning 18 & raiding accounts that I theoretically didn't know about. "Hello, Mr. Banker. I believe you may have something that belongs to me. Now what are we going to do about that?"

Some kids intercept the household mail to look for underwear catalogs; I intercepted the mail to look for financial statements (also the catalogs).
Another pitfall of the child-as-owner thing is the way they're counted in financial aid--they hurt financial aid much more as the child's assets than the parent's. I really can't see any good reason to have the child as the owner...if you want to give the child money, set up a trust or an UTMA.

Also, OP, have you seen finaid.com? Most of it won't be relevant yet, but the saving section might http://www.finaid.org/savings/.
NYerinLondon
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Post by NYerinLondon »

bentley120 wrote:
Also, do you know if you get credit on your taxes for an in-state 529? That might actually help you make your decision to switch 529 providers.
I don't know - how do I find out?? My husband does the taxes and I just asked him and he has no clue. We are in Virginia.
Virginia has one of the best State run 529 plans in the country. Go to virginia529.com and have a look. The VEST plan allows you to put money in low-cost funds--it's open to residents of any state, but if you have Virginia source income, you can offset $4000 per account per year. Another interesting tax twist: as the account holder (on the beneficiary's behalf), you are able to claim a Virginia deduction for contributions into the account(s) by, say, the child's grandparents (the grandparents would not be able to claim an offset).

If you live in Virginia, I think you should definitely consider it (of course, do your own research). There are also pre-paid options, and some professionally managed plans they offer. FWIW, I didn't care for those as much as VEST.

Good luck!
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Post by BruceM »

zblongladder wrote: Another pitfall of the child-as-owner thing is the way they're counted in financial aid--they hurt financial aid much more as the child's assets than the parent's. I really can't see any good reason to have the child as the owner...if you want to give the child money, set up a trust or an UTMA.

Also, OP, have you seen finaid.com? Most of it won't be relevant yet, but the saving section might http://www.finaid.org/savings/.
Effective beginning in 2009, 529 plans held in the childs name as custodial accounts are treated as a parental asset if the child is a FAFSA dependent, and the child's asset if the child is a FAFSA independent. This means that the account value only counts at 5.64% of its value towards determining need, rather than 20% of the student's assets.

BruceM
exigent
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Post by exigent »

I looked into this once awhile back. I can't remember the exact details, but you should be able to use a single account for now and then later split it. IIRC, you would do a partial "rollover" (or whatever the proper term would be in this case - transfer?) to another plan, and then change the beneficiary on that plan. This *might* preclude having that second at the same custodian as the first, though you could always transfer out, change beneficiary, then transfer back in to the original custodian. It's a bit of extra work, so you have to choose your poison.
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Post by Tramper Al »

Just a couple more comments on the pros and cons.

First: Having two separate 529s at the same provider is I would say infinitesimally more complex than having one. You log on and there they are side by side. Avoid any with a per-account fee, and I really see very little downside to having the 2 accounts.

Second: 529 rules allow one transaction per account per year. This may seem like enough for now, but you may definitely want more flexibiilty than this. You can still treat them for AA purposes as one combined 529, but having twice as many transactions allowed can only help.
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