Author Topic: 529 vs trust  (Read 374 times)

letsdoit

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529 vs trust
« on: May 13, 2019, 07:49:17 AM »
i have created trusts for college investments for our kids

some friends prefer 529 bc they can use it as a tax sheter (up to 10k per yr) to pay private school before college.

i also  wonder about how our kids' trust assets will affect their FAFSA profile and whether having money in  a 529 would be different from having it in a trust

reeshau

  • Bristles
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Re: 529 vs trust
« Reply #1 on: May 13, 2019, 08:35:07 AM »
Yes, it is different.  From a quick web search:

Quote
Student assets are assessed at a greater rate than parent assets on financial aid application forms. For example, the Free Application for Federal Student Aid (FAFSA) bases the expected family contribution (EFC) on 20% of student assets but at most 5.64% of parent assets. So, it is always best to save for college in the parentís name, not the childís name.

https://www.edvisors.com/fafsa/secrets/student-vs-parent-assets/

GizmoTX

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Re: 529 vs trust
« Reply #2 on: May 13, 2019, 09:54:52 AM »
We set up an Irrevocable trust for DS, primarily for education but it can & has lived on since he graduated. The trust allowed us to transfer an annual amount under the gift tax exclusion to DS but retain control beyond 18, which UGMA does not. The trust was invested in tax friendly low fee index funds for the long term, and is not required to make recurring distributions. Since the trust is not part of our income, we legally avoided the kiddie tax, better for us than a 529. FAFSA was never an concern for us & we never filled one out; being FI, we wouldn't qualify & never planned to get student loans. Finally, DS chose a university with 2 sizable merit scholarships.
 

DadJokes

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Re: 529 vs trust
« Reply #3 on: May 13, 2019, 10:18:41 AM »
I will be paying for my child's school out of my 457b. Putting the funds in a retirement account will impact FAFSA more positively than a 529 would. Additionally, I intend to be retired before he starts school (not sure if wife plans to, but she could), so our EFC should be extremely low.

Buffalo Chip

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Re: 529 vs trust
« Reply #4 on: May 14, 2019, 08:15:41 PM »
Something folks forget to consider with 529s: some states offer generous state tax deductions or credits for contributions.

Full_Beard

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Re: 529 vs trust
« Reply #5 on: May 14, 2019, 09:50:20 PM »
The advantages of the 529 plans are pretty strong (to me) and that's where I put my kids' college savings too. I also have Education or Coverdell IRAs because I have stronger say over the actual investment (stock or SP500).

As an aside, there's a lot of confusion over the estate and gift tax exemption. Today, it is $11.4 million. So, if you're well under that, you can give money to your kids without a tax worry. Yes, if you give more than $15,000 to one kid in a given year, you have to report the gift and that gift will count towards your lifetime exemption of $11.4 million. But, there are no tax consequences to that gift (as long as your giving remains under the $11.4 million exemption). The only benefit to giving under $15K in a given year is that you don't have to file a form and, as a result, the gift doesn't count toward your lifetime exemption. But, if you will never have $11.4M (I won't), you need not worry about it.

reeshau

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Re: 529 vs trust
« Reply #6 on: May 15, 2019, 02:20:58 AM »
As an aside, there's a lot of confusion over the estate and gift tax exemption. Today, it is $11.4 million.

Just note that, as of now, it is only $11.4 million until 2025.  It's one of the provisions of the 2017 tax cut that expire.  (where it would then revert to a measly $5.49M)  While it could always be made permanent some time, and has generally increased, there is no certainty it will remain so over our lifetimes.  Just as with projecting future tax rates, working this question is a matter of optimization of risks and return.

P.S.  In Ireland, the exemption is $300k.  So, not planning to die here.