529, UTMA/UGMA, or establish a trust?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
cburg86
Posts: 11
Joined: Sun Sep 23, 2018 9:55 am

529, UTMA/UGMA, or establish a trust?

Post by cburg86 »

Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs. My wife and I met while I was working as a divemaster in Thailand, I'm from the states while she is a native of Argentina with Italian citizenship. She misses her family, even more so with our son now, so I wouldn't be surprised that within the next 2-4 years I'll be packing up to move abroad to most likely Argentina for a bit before god knows where after that. Argentina's economic instability isn't something I want to deal with for the long term. Italy and Argentina offer free education and without knowing wether or not we'll transplant somewhere else in the states at some point or another Im not sure a 529 plan makes sense. I also don't know about UTMA/UGMA, I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships. Or should I just establish a trust? Any help would be great, thank you.

Chris
megabad
Posts: 3314
Joined: Fri Jun 01, 2018 4:00 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by megabad »

It sounds like you are uncertain of the future. I think, in general, that is a poor time to enter long term planning vehicles (ie. 529, trusts, UTMA/UGMA). If there is a lot of money at stake or you become more certain, I might hire a professional who is intimately familiar with expats in your future location.
oldfatguy
Posts: 714
Joined: Tue Feb 27, 2018 1:38 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by oldfatguy »

cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs ...

I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships.
So you want to invest money for your child, but do not want to have to pay for his education? I'm not sure I follow that logic.
cshell2
Posts: 533
Joined: Thu May 09, 2019 10:29 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by cshell2 »

oldfatguy wrote: Tue Jan 12, 2021 8:27 am
cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs ...

I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships.
So you want to invest money for your child, but do not want to have to pay for his education? I'm not sure I follow that logic.
I think the point is that some savings vehicles are more harmful to financial aid than others. Why make things worse on yourself than you have to?
megabad
Posts: 3314
Joined: Fri Jun 01, 2018 4:00 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by megabad »

oldfatguy wrote: Tue Jan 12, 2021 8:27 am
cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs ...

I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships.
So you want to invest money for your child, but do not want to have to pay for his education? I'm not sure I follow that logic.
I think OP was implying that child would be potentially be eligible for less need based aid if using certain vehicles for college savings and he/she wants to mitigate that. For example, keeping assets in child's name instead of parent would dramatically increase EFC.

edit:cshell beat me to it.
oldfatguy
Posts: 714
Joined: Tue Feb 27, 2018 1:38 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by oldfatguy »

megabad wrote: Tue Jan 12, 2021 8:47 am
oldfatguy wrote: Tue Jan 12, 2021 8:27 am
cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs ...

I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships.
So you want to invest money for your child, but do not want to have to pay for his education? I'm not sure I follow that logic.
I think OP was implying that child would be potentially be eligible for less need based aid if using certain vehicles for college savings and he/she wants to mitigate that. For example, keeping assets in child's name instead of parent would dramatically increase EFC.

edit:cshell beat me to it.
Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
megabad
Posts: 3314
Joined: Fri Jun 01, 2018 4:00 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by megabad »

oldfatguy wrote: Tue Jan 12, 2021 8:55 am Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
I think you are implying a moral side to my point where there wasn't one. The fact is, holding $20k in child's UTMA account results in less need based financial aid than holding $20k in parents 529 account (per FAFSA). It is a point of math, not morals.
oldfatguy
Posts: 714
Joined: Tue Feb 27, 2018 1:38 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by oldfatguy »

megabad wrote: Tue Jan 12, 2021 9:00 am
oldfatguy wrote: Tue Jan 12, 2021 8:55 am Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
I think you are implying a moral side to my point where there wasn't one. The fact is, holding $20k in child's UTMA account results in less need based financial aid than holding $20k in parents 529 account (per FAFSA). It is a point of math, not morals.
It's not morals, it just doesn't make sense to me. Someone with the income and assets to be considering how to invest for an infant most likely isn't going to qualify for any financial aid, and I certainly wouldn't let that remote possibility dictate how to arrange my finances.
MyBrothersAdvisor
Posts: 14
Joined: Mon Jun 19, 2017 10:42 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by MyBrothersAdvisor »

oldfatguy wrote: Tue Jan 12, 2021 9:10 am
megabad wrote: Tue Jan 12, 2021 9:00 am
oldfatguy wrote: Tue Jan 12, 2021 8:55 am Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
I think you are implying a moral side to my point where there wasn't one. The fact is, holding $20k in child's UTMA account results in less need based financial aid than holding $20k in parents 529 account (per FAFSA). It is a point of math, not morals.
It's not morals, it just doesn't make sense to me. Someone with the income and assets to be considering how to invest for an infant most likely isn't going to qualify for any financial aid, and I certainly wouldn't let that remote possibility dictate how to arrange my finances.
This is where OP will need to really think about their options. If you have money to set aside for a child (in a UTMA or otherwise), you're likely not going to qualify for financial aid. It sounds like OP may not need to pay for college, so a 529 wouldn't make sense. We went the UTMA route since I wasn't sure what the higher education landscape would be when my kids go to college. Plus, I'm not sure what they'll end up doing for college. I have a 4 year degree, but my husband got a 2 year that ended up totaling about $6k. I didn't want to risk putting away too much money in the event one or more of the kids ends up with something other than a 4 year degree. The UTMA will impact their ability to get financial aid, but in the end, they won't qualify for anything anyway.

OP, I would really think about whether or not your child(ren) will qualify for financial aid in the future or not.
megabad
Posts: 3314
Joined: Fri Jun 01, 2018 4:00 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by megabad »

oldfatguy wrote: Tue Jan 12, 2021 9:10 am It's not morals, it just doesn't make sense to me. Someone with the income and assets to be considering how to invest for an infant most likely isn't going to qualify for any financial aid, and I certainly wouldn't let that remote possibility dictate how to arrange my finances.
I think you are probably right in many cases, but every situation is different so just trying to explain OP potential reasons. Someone who FIREs early would have a very different financial situation than you might assume and even a somewhat wealthy family might qualify for need based aid under various circumstances. Yes, that is a relatively unusual circumstance.
Last edited by megabad on Tue Jan 12, 2021 10:32 am, edited 1 time in total.
cshell2
Posts: 533
Joined: Thu May 09, 2019 10:29 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by cshell2 »

oldfatguy wrote: Tue Jan 12, 2021 9:10 am
megabad wrote: Tue Jan 12, 2021 9:00 am
oldfatguy wrote: Tue Jan 12, 2021 8:55 am Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
I think you are implying a moral side to my point where there wasn't one. The fact is, holding $20k in child's UTMA account results in less need based financial aid than holding $20k in parents 529 account (per FAFSA). It is a point of math, not morals.
It's not morals, it just doesn't make sense to me. Someone with the income and assets to be considering how to invest for an infant most likely isn't going to qualify for any financial aid, and I certainly wouldn't let that remote possibility dictate how to arrange my finances.
I don't know. I saved for my son since he was an infant and he still qualified for a lot of need-based aid. Also my state gives grants up to a pretty high income. I mean, obviously if you're quite well off it's probably not something to worry about, but then again, stuff happens. It would suck to lose a high paying job just before kiddo heads off to college and have a big UTMA account getting hit at 20% where it would only have been 6% if it was in a 529 or taxable in the parent's name...or ignored completely in a Roth.
DIFAR31
Posts: 478
Joined: Mon Jan 01, 2018 5:51 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by DIFAR31 »

cburg86 wrote: Tue Jan 12, 2021 7:40 am I also don't know about UTMA/UGMA, I don't want to put money away to only have that hamstring him later on in the college process in terms of financial aid and scholarships. Or should I just establish a trust?
A trust for your son will have the same need-based financial aid impact as a UTMA/UGMA account - the funds will be assessed as a student asset.
Lexx
Posts: 138
Joined: Mon Dec 21, 2020 6:21 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by Lexx »

If you put the money into a 529 and your kid goes to school in Italy, AFAIK the 529 can not be used unless the school meets certain conditions. There's a list out there that tells you which schools qualify.

You should speak to an estate planning attorney who's well versed in the countries you may re-locate to.

AFAIK trusts of which the kids are beneficiaries, DO count towards FAFSA.

Here's an interesting read:
https://www.savingforcollege.com/articl ... ancial-aid
https://www.savingforcollege.com/articl ... -529-plans
Topic Author
cburg86
Posts: 11
Joined: Sun Sep 23, 2018 9:55 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by cburg86 »

MyBrothersAdvisor post_id=5730198 time=1610461206 user_id=122195]


This is where OP will need to really think about their options. If you have money to set aside for a child (in a UTMA or otherwise), you're likely not going to qualify for financial aid. It sounds like OP may not need to pay for college, so a 529 wouldn't make sense. We went the UTMA route since I wasn't sure what the higher education landscape would be when my kids go to college. Plus, I'm not sure what they'll end up doing for college. I have a 4 year degree, but my husband got a 2 year that ended up totaling about $6k. I didn't want to risk putting away too much money in the event one or more of the kids ends up with something other than a 4 year degree. The UTMA will impact their ability to get financial aid, but in the end, they won't qualify for anything anyway.

OP, I would really think about whether or not your child(ren) will qualify for financial aid in the future or not.

Thank you for picking up what I was putting down. Maybe I should have given more background and numbers to work with to help clear things up. I'm 38 and have been married for 3 years now, my wife is not working at the moment to be with our son. When she was it was as a waitress but with covid now thats not an option so working on a side hustle. I Graduated with a bachelors in business administration, worked in financial services (insurance) out of college, hated that. Worked in midtown Manhattan at Bear Stearns, the commute killed me and hated it. Settled in a back office operations role for Metlife securites before putting my months notice the day I paid off my last student loan. After that I travelled and fell in love with scuba diving where I worked for a short bit in Thailand and eventually met my wife. Came back to a warehouse job where I've been for 6 1/2 years, I make $65,000 as a base salary with another $12-20k after taxes as a bonus at the end of the year based on the companies profit sharing plan. The cherry on top, and the only reason I still work there, is they put away 25% of the total amount of my base salary and profit sharing towards my deferred profit sharing plan. I dont pay a cent towards my retirement plan which is anywhere between $20 -24k a year. With that currently at $175k (run by a third party money manager, employee's are not given investment options like in a standard 401k), my traditional IRA $65k, and Roth $22k both at vanguard and invested around 90% in the 3 fund approach with the other 10% in some sector etf's and stocks. I have a $20k emergency fund stashed in Vio bank. Own my 3 cars, no student debt, no credit card debt, only my mortgage of $198k at 2.99%. Home is currently valued at $275k. I've maxed out my Roth for the past 3 years and plan to do so until I retire even if it means coming back to the states each summer to bartend or flip burgers. Our only long term goal is to retire in Costa Rica, which currently does not tax retirement, pension, or social security income. With maxing out my Roth and me rolling over my current retirement assets (I plan to work where I am for another 2-3 years at most so another $40-60k) to my traditional IRA, I think long term I'll be just fine.

Currently I have the ability to put away some money for my sons future, 5 years from now who knows. Im not hung up on financial aid but it is something I have to think about in the future potentially. My wife's family owns 5 quarry's in Argentina, I could end up driving a loader for 5 years down there for all i know and come back state side to a job at Home Deopt. Im looking for which "vehicle" makes the most sense in terms of putting away money for him for the future thats tax efficient for him, wether he uses it for education, to fund his own business, or a downpayment on his first house.
Topic Author
cburg86
Posts: 11
Joined: Sun Sep 23, 2018 9:55 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by cburg86 »

MyBrothersAdvisor wrote: Tue Jan 12, 2021 9:20 am
oldfatguy wrote: Tue Jan 12, 2021 9:10 am
megabad wrote: Tue Jan 12, 2021 9:00 am
oldfatguy wrote: Tue Jan 12, 2021 8:55 am Yeah, that's the logic I don't understand. Why would anyone expect financial aid when they have money to invest for a child? To me that seems like maxing out retirement account contributions and then standing in line at a food pantry for groceries.
Thanks again for any help

I think you are implying a moral side to my point where there wasn't one. The fact is, holding $20k in child's UTMA account results in less need based financial aid than holding $20k in parents 529 account (per FAFSA). It is a point of math, not morals.
It's not morals, it just doesn't make sense to me. Someone with the income and assets to be considering how to invest for an infant most likely isn't going to qualify for any financial aid, and I certainly wouldn't let that remote possibility dictate how to arrange my finances.
This is where OP will need to really think about their options. If you have money to set aside for a child (in a UTMA or otherwise), you're likely not going to qualify for financial aid. It sounds like OP may not need to pay for college, so a 529 wouldn't make sense. We went the UTMA route since I wasn't sure what the higher education landscape would be when my kids go to college. Plus, I'm not sure what they'll end up doing for college. I have a 4 year degree, but my husband got a 2 year that ended up totaling about $6k. I didn't want to risk putting away too much money in the event one or more of the kids ends up with something other than a 4 year degree. The UTMA will impact their ability to get financial aid, but in the end, they won't qualify for anything anyway.

OP, I would really think about whether or not your child(ren) will qualify for financial aid in the future or not.
Lexx
Posts: 138
Joined: Mon Dec 21, 2020 6:21 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by Lexx »

cburg86 wrote: Wed Jan 13, 2021 8:12 am Our only long term goal is to retire in Costa Rica, which currently does not tax retirement, pension, or social security income.
Make sure you know the ramifications of being an American citizen and living in another country. It can get tricky as the IRS taxes your worldwide income.
User avatar
cowdogman
Posts: 722
Joined: Sat Dec 16, 2017 7:44 pm
Location: Washington State

Re: 529, UTMA/UGMA, or establish a trust?

Post by cowdogman »

529 is out for the reasons the OP states.

UTMA is out because the funds must be handed to the child at a certain age (18/21)--and so putting any significant amount in an UTMA is dangerous, especially if the funds may not be used by the parent for the child's expenses before 18/21.

Trust? Too complicated and similar issues to the UTMA--the money belongs to the child.

The obvious choice is to set up a new dedicated account in the parents' names for the purpose of saving for the child's education. The parents will need to be disciplined to not use the money for any other reason and keep trading to a minimum to minimize taxes. As the future becomes clearer at a later date, then the parents can shift the money, e.g., to a 529 if appropriate. The child is only 6 months. No need to make irrevocable decisions now.
User avatar
NewMoneyMustBeSmart
Posts: 471
Joined: Sat Jun 01, 2019 10:28 pm
Location: Midwest

Re: 529, UTMA/UGMA, or establish a trust?

Post by NewMoneyMustBeSmart »

cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs.
Secure your own oxygen mask before assisting others.

Today you and a partner can each gift the sum of $5M in your lifetimes without paying tax, AND $15k/year.

Build up your own wealth. Gift it to your kid when it makes sense.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein
Topic Author
cburg86
Posts: 11
Joined: Sun Sep 23, 2018 9:55 am

Re: 529, UTMA/UGMA, or establish a trust?

Post by cburg86 »

NewMoneyMustBeSmart wrote: Wed Jan 13, 2021 10:03 pm
cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs.
Secure your own oxygen mask before assisting others.

Today you and a partner can each gift the sum of $5M in your lifetimes without paying tax, AND $15k/year.

Build up your own wealth. Gift it to your kid when it makes sense.
Thank you New Money!
k b
Posts: 144
Joined: Tue Oct 15, 2013 8:43 pm

Re: 529, UTMA/UGMA, or establish a trust?

Post by k b »

NewMoneyMustBeSmart wrote: Wed Jan 13, 2021 10:03 pm
cburg86 wrote: Tue Jan 12, 2021 7:40 am Have a 6 month old son who I would like to start putting money away for and not sure which option will best fit my families needs.
Secure your own oxygen mask before assisting others.

Today you and a partner can each gift the sum of $5M in your lifetimes without paying tax, AND $15k/year.

Build up your own wealth. Gift it to your kid when it makes sense.
Great way to frame it! Well put.
Post Reply