I currently make way too much money - way more than anyone else in my family. I want to start a college/other savings account for each of my nieces (my brother's daughter is about 8 months old, my sister's will be born in a few weeks). I'm planning to contribute $1,000 each now, and another $1,000 per year on their birthdays until they turn 18. I'd reevaluate if my siblings end up having tons of kids or if I switch to a lower-paying job.
I'm planning to approach my brother and sister about this and ask what they prefer in terms of the mechanism. Here are the options and the pros/cons I'm planning to present to them - if anyone thinks I'm missing something, I'd love to hear it.
1. If they already have or are planning to set up a college fund, they can give me the account number and I'll just contribute to it. If they do, I think this would be my first choice, since they're the parents and all.
2. I can set up a custodial account. Pros: the money irrevocably belongs to my nieces (so if something unexpected happened, like if I died or went bankrupt or got divorced or had a judgment levied against me, it would be theirs without many complications), and they can use it on expenses other than college if it turns out that would be more useful to them (car, housing, summer camp, what have you). Con: It would count heavily against them for financial aid purposes.
3. 529 account. Pros: doesn't weigh as heavily against them for financial aid purposes (so I hear), I might get some sort of tax break out of it (but probably not, based on my quick googling about California state tax breaks). Cons: a bunch of strings attached about what they can use the money for.
4. I just set up a separate investment account in my own name that I personally earmark for their use. Pros: It won't count against them at all for financial aid purposes. Cons: The money is technically my asset, and therefore subject to any unexpected events that happen in my life listed (pro from option #2), if it's in excess of the taxable gift threshold when they turn 18 (which is likely), I'd have to either divvy it up over multiple years or pay tuition directly or something like that, which adds a layer of complication.
What does everyone think?