Hi all,
Not sure where to ask this, however trying here first…
New great grandson, lives in Seattle , we live in Fl and want to set up a 529 college fund for him. If we open it in our name and designate one of his parents as trustee, will that impact his ability to obtain a student loan, if he needs one when college age?
Thanks for any guidance….
Not sure where to ask this, however trying here first…
There’s a Paying for College board https://discussion.fool.com/paying-for-college-100157.aspx
New great grandson
Congratulations!
If we open it in our name and designate one of his parents as trustee, will that impact his ability to obtain a student loan, if he needs one when college age?
I will point out that as difficult as it is to predict what tax law will be 18 - 20 years in the future, it’s probably even more difficult to predict how student aid will be disbursed 18 - 20 years in the future. That, under current rules, if a 529 plan is owned by someone other than the student or their parent, it does not have to be listed as an asset on the FAFSA, so it won’t impact student aid decisions.
AJ
Not knowing the age of the parents, you should verify if transferring the 529 fund to great grandson from the parents would incur generation skipping taxes.
Thx - doing more research now and will check other board too
Not knowing the age of the parents, you should verify if transferring the 529 fund to great grandson from the parents would incur generation skipping taxes.
The parents would only be the trustee, not the owner, so the contributions are not considered gifts to the parents. Because of this, the issue would be giving the gifts to the great-grandson, not the parents. As long as the annual gifts plus other gifts to the great-grandson are less than the annual gift exclusion limit ($16,000 for 2022, adjusts for inflation), there would be no generation skipping tax issue. And even if there are generation-skipping issues, until the gifters each reach their lifetime gift exclusion limit ($12.06MM for 2022, adjusted for inflation), they would only need to file a Form 709 to report the reduction in their lifetime exclusion. Once the lifetime exclusion is reached, there would be gift taxes imposed.
I would also point out that up to 5 years of gifts can be made at once to a 529, so as long as additional gifts aren’t made to the beneficiary for 5 years, no gift tax issues would be triggered.
AJ
The parents would only be the trustee, not the owner
AJ, you are right. I read it incorrectly as the parents would be the beneficiary.
For more info on 529’s:
www.savingforcollege.com
www.morningstar.com/articles/1006084/the-top-529-college-sav…
You don’t have to select a program run by the state where either you or the beneficiary resides. Of course, some states allow some contributions to be tax deductible, and of those, some limit deductibility eligibility to the program run by the state of the taxpayer’s residence. But IMO the quality of the 529 program overrides the nominal benefit of a break on state taxes.
For my grandson, I chose Illinois’s Bright Start program www.brightstart.com and within that, selected the Vanguard Total Stock Market Index. Since he’s a baby, I figured it would be good to invest aggressively for awhile, and maybe seque to more conservative as his college years approach.
I’m not entirely happy with it. I wanted to set up automatic recurring contributions, but I can’t do that online. I’d have to mail in a form with a medallion signature (not just notarized); and later, if I wanted to make any changes, I’d also have to do that by mail. So I have my online calendar email me a reminder each month, and I send a contribution then. Luckily, at least I can do (non-recurring) contributions online, I don’t have to mail a physical check.
I didn’t open it in my own name. I figured that by the time Sweetums is in college, I’ll be lucky if I’m competent to handle my own finances; I certainly don’t want to be involved in anyone else’s. So I gave my son some seed money to set it up, with him (the parent) as owner; and he sent me a link that I can use to make contributions. If DS wants to move the 529 to a different program (there are other good ones), or move to a different fund within the existing 529, he can do that. Obviously, I trust he won’t embezzle from his son.
For FAFSA, parent-owned 529’s count, whereas grandparent-owned ones don’t, so this is not the most beneficial arrangement in terms of financial aid. However, I found when my own children were in college, financial aid is most often in the form of loans, and the whole purpose of funding a 529 is to avoid or at least minimize student loans. Grants are typically merit-based, not need-based, so FAFSA doesn’t affect those.
Congrats, and good luck!
I wanted to set up automatic recurring contributions, but I can’t do that online. I’d have to mail in a form with a medallion signature (not just notarized)
Update: Ideally on their contribution link they’d have a “one time or recurring?” option, and I suggested that last summer and again yesterday. They’re not doing that; however, since I’ve been a regular contributor, yesterday they waived the medallion signature requirement. I just had to email them the form, and they set up the automatic recurring contributions for me. I’m very pleasantly surprised. It never occurred to me to ask for an exception.