1) If you aren't already aware, your mom is supposed to file a gift tax form. If the gifts between a gifter giftee pair exceed $14k in a single calendar year, gift tax forms must be filed. If the gifter is married, then instead of a $14k limit it is a $28k limit.
Practically speaking, even though the gift tax forms must be filed, unless your mother dies a very rich person, gift taxes aren't ever going to be paid. Any gifts over the annual exclusion amount count against hte lifetime estate tax limit, which is currently $5.49 million dollars (double that if married). Any inheritance your mother leaves is counted against this lifetime limit as well. If after all of that the limit has been used up, then anything else is subject to estate taxes of 40% or so, i forget the exact number.
2) Be aware that 529 funds can be used tax and penalty free for room and board expenses if the student is enrolled at least half time. Even if your kids get full scholarships, 529 money can still be used for this.
The actual amount that can be used as room and board is the greater of
a) The cost of attendance figures published by the financial aid office for room and obard
b) The actual amount charged for room and board by the university.
https://www.irs.gov/publications/p970/ch08.html3) In the event your kid gets a scholarship, you use the 529 funds for room and board, and you still have money left over, you have another option: you are allowed to withdraw 529 money up to the value of the scholarship penalty (but not tax) free.
http://www.kiplinger.com/article/college/T002-C001-S001-the-529-plan-scholarship-exception.html4)
1. Since the order of needing education money would be: me, DD, DS, I thought that for simplicity, I could just open one 529 in my name, then transfer to DD when she starts college, then transfer to DS when he starts college. I don't see a problem with this. Am I overlooking something? Is there any reason to have multiple 529s if our education years do not overlap?
Sure, nothing wrong with this. There are no tax consequences to changing the beneficiary on your 529.
This is incorrect. Taken from the
US Code(5) Other gift tax rulesFor purposes of chapters 12 and 13—
(A) Treatment of distributions
Except as provided in subparagraph (B), in no event shall a distribution from a qualified tuition program be treated as a taxable gift.
(B) Treatment of designation of new beneficiary
The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) unless the new beneficiary is—
(i) assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and
(ii) a member of the family of the old beneficiary.
See also 5) at
http://www.fa-mag.com/news/avoiding-section-529-plan-pitfalls-6204.htmlChanging it from yourself to your kid subjects the entire 529 balance to a gift tax.
5) FAFSA isn't the end all be all. Some schools practice gapping, which is where the FAFSA says your EFC (expected family contribution) is $X, but they tell you you're going to have to pay more than $X.
6) Should you decide to use 529s, you need to coordinate the usage of 529 money with the LLC (lifetime learning credit), AOTC (American Opportunity Tax Credit), and/or the tuition and fees deduction. There are many rules to them that would take a while to explain, but the point I want to raise right now is any QHEE (qualified higer educational expenses) that you claim as tax free use of 529 money CANNOT be overlapped with QHEE you use to claim the AOTC. You must pay money out of pocket, not from 529 money, to be able to claim these credits.
LLC is 20% of first $10k, AOTC is 100% of the first $2k and 25% of the second $2k. Tuition and fees deduction is an above the line deduction of up to $4k.
What state are you in? Does your state give a tax deduction for 529 contributions?