Author Topic: 529 for daughter in parents name or grand parents name?  (Read 4492 times)

eyePod

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529 for daughter in parents name or grand parents name?
« on: December 01, 2012, 11:53:47 AM »
Father in law wants to put it in his name.  Basically this would allow her to not include that in our assets for any financial aid when/if she goes to college/tech school/whatever.  By putting it in the grandparents name, we'd get 1 year of not including it, but if anything is used from the 529 for that year, then that amount would be included in the next year's FAFSA as reportable income of hers.

I'm not comfortable with this for a few reasons:

I want to be in control of my families' finances. 
I don't want even think about needing financial aid as an option.
I don't know if this is weird, but it just feels shady to me.

ON top of that issue, I'm also stuck between the Vanguard 529 through Nevada and the PA529.  I just don't think the tax benefits for the PA529 that we would receive make it worth it.  Any help would be greatly appreciated!

Worsted Skeins

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Re: 529 for daughter in parents name or grand parents name?
« Reply #1 on: December 01, 2012, 12:36:09 PM »
One more consideration:  While FAFSA does not require a 529 in a grandparent's name to be listed as an asset, the CSS Profile (the financial aid form required by many private colleges) does if that 529 lists your kid as the beneficiary.  If you think your kiddo is going to end up at an Ivy, Cal Tech or another competitive private college, the discussion of who holds the 529 is moot. 

Help from a grandparent is generous.  Good luck in determining what is best for your situation.

eyePod

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Re: 529 for daughter in parents name or grand parents name?
« Reply #2 on: December 01, 2012, 12:44:22 PM »
One more consideration:  While FAFSA does not require a 529 in a grandparent's name to be listed as an asset, the CSS Profile (the financial aid form required by many private colleges) does if that 529 lists your kid as the beneficiary.  If you think your kiddo is going to end up at an Ivy, Cal Tech or another competitive private college, the discussion of who holds the 529 is moot. 

Help from a grandparent is generous.  Good luck in determining what is best for your situation.

That's a good point.  And I agree.  Both sets of grandparents have shown interest investing in our daughter's future.  I don't want to seem ungreatful, because this is going to be a huge boon to us financially and emotionally!  That's why I was hoping I could get some insight in handling this in a tactful manner.  Info like you gave me is just the type of thing I was looking for.

Worsted Skeins

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Re: 529 for daughter in parents name or grand parents name?
« Reply #3 on: December 01, 2012, 02:00:42 PM »

That's a good point.  And I agree.  Both sets of grandparents have shown interest investing in our daughter's future.  I don't want to seem ungreatful, because this is going to be a huge boon to us financially and emotionally!  That's why I was hoping I could get some insight in handling this in a tactful manner.  Info like you gave me is just the type of thing I was looking for.

If it is any help, we knew going into the college application process that my son would have a high EFC (Expected Family Contribution) because of our assets.  There can be disconnect though between a family's reality of a reasonable contribution and what the formula indicates.  (In our case, having a share in an inherited trust that owns a prime real estate cottage boosts our assets but with something that is non-liquid.)  We decided to consider Roth IRA contributions as a possible source to tap for eventual college funding.  As things turned out, our son received a significant merit aid scholarship.  We have yet to tap into our Roths and in fact have managed to keep funding them while our son is in school.  No debt (yet) on his part.  This just took some planning and a willingness on our part to make up the difference after his scholarship is considered.  He also has a bit of inherited money that he used to fund an educational experience abroad.

Every family is different though.  One of my friends found that it was cheaper for her son to attend a private liberal arts school on scholarship than to attend their instate university that offers no aid to middle class families other than loans. 

What makes the planning really tricky is predicting what will happen to higher education in the fifteen or eighteen years before your child applies!   I truly wish you luck in figuring this out.

Nords

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Re: 529 for daughter in parents name or grand parents name?
« Reply #4 on: December 01, 2012, 03:50:28 PM »
I'm not comfortable with this for a few reasons:
I want to be in control of my families' finances. 
I don't want even think about needing financial aid as an option.
I don't know if this is weird, but it just feels shady to me.
Speaking as a guy who had zero money for college, put yourself in your child's perspective.  How would they feel when they're 18 years old and the grandparents are helping them pay for college?  How would they feel when they see other classmates taking out student loans (and jobs) while they're getting a leg up from the family education fund?

I think they'd feel pretty grateful.

Speaking as a prospective father in law (ideally not for another decade or two), this 529 account could be set up for your kid or for anyone else.  It's an indication that your PILs have more assets than they think they need, and it's important to them to help out another generation with an educational subsidy.  But there's no guarantee that today's generosity will actually go to your kid, especially if some other relative seems to be on a more rocky financial footing.  In other words, if you seem to be in control of your family's finances then they may decide that you guys don't need any help after all.

So here's what I recommend you do:
1.  Say "Thank you very much, we appreciate it!"
2.  Continue to make your own financial plans (including your own 529) as if the PILs were doing nothing (because your kid is still a few years away from college, right?).
3.  Let your kid make up their own mind whether to accept the grandparents' financial support.

None of this is about you, nobody's trying to take away any control from you, so I'd recommend that you try not to take it personally.

eyePod

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Re: 529 for daughter in parents name or grand parents name?
« Reply #5 on: December 01, 2012, 04:29:09 PM »
So here's what I recommend you do:
1.  Say "Thank you very much, we appreciate it!"
2.  Continue to make your own financial plans (including your own 529) as if the PILs were doing nothing (because your kid is still a few years away from college, right?).
3.  Let your kid make up their own mind whether to accept the grandparents' financial support.

None of this is about you, nobody's trying to take away any control from you, so I'd recommend that you try not to take it personally.

Thanks for the reply.  Our daughter is actually not even 1 month old! We're getting started early.  And I'd love to think that our daughter will be as grateful as I was with ANY financial help through college.  My parents helped pay for 4 out of the 5 years at my school (it was a BS/MS program at a school with paid co-ops, so I helped out with that money too).  Only having one year of schooling to pay for allowed my wife and I to be in our current situation.

I figured that having the 529 was a great idea and would be somewhere where both sets of grandparents could put money if they wanted to, where they knew it was going to be used for education.  I just don't think it's worth the shenanigans to have it in a grandparents name instead of ours.

lhamo

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Re: 529 for daughter in parents name or grand parents name?
« Reply #6 on: December 01, 2012, 04:39:33 PM »
What shenanigans?  It's their money, right?  Why shouldn't it be in their names?  Personally, I'd encourage both sets of grandparents to set up accounts however they like.  You can set up your own accounts and make separate contributions of your own and with any gifts they give you, if you choose to do it that way.

You may want control over the money but so may they.  Don't forget that whoever owns the account has the power to change the beneficiary.  Say your parents/inlaws give you money intended for your child's use.  But then you and spouse divorce, and spouse gets control of the accounts.  Spouse marries loser who decides he wants to get a Ph.D. in basketweaving.  Spouse changes account beneficiary to loser's name, and there goes the 529 assets.  Granted, most divorce decrees would probably have stipulations about how the 529 can be used, but still there is always a risk.


eyePod

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Re: 529 for daughter in parents name or grand parents name?
« Reply #7 on: December 01, 2012, 04:53:18 PM »
What shenanigans?  It's their money, right?  Why shouldn't it be in their names?  Personally, I'd encourage both sets of grandparents to set up accounts however they like.  You can set up your own accounts and make separate contributions of your own and with any gifts they give you, if you choose to do it that way.

You may want control over the money but so may they.  Don't forget that whoever owns the account has the power to change the beneficiary.  Say your parents/inlaws give you money intended for your child's use.  But then you and spouse divorce, and spouse gets control of the accounts.  Spouse marries loser who decides he wants to get a Ph.D. in basketweaving.  Spouse changes account beneficiary to loser's name, and there goes the 529 assets.  Granted, most divorce decrees would probably have stipulations about how the 529 can be used, but still there is always a risk.

You make a great point.  Also, if we seem super well off financially, he can feel free to switch the beneficiary to some other grand kid.  I'd originally felt that we'd want to put all of our investments into the one fund to gain the most possible interest from compounding, and that if we separated it out, it wouldn't be as powerful.

grantmeaname

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Re: 529 for daughter in parents name or grand parents name?
« Reply #8 on: December 01, 2012, 07:31:29 PM »
I'd originally felt that we'd want to put all of our investments into the one fund to gain the most possible interest from compounding, and that if we separated it out, it wouldn't be as powerful.
That's not how compounding works. It has no effect how many buckets a given amount of principal is in and growing. Think about it -- 3 $1,000 savings accounts growing at 1% will earn you just as much interest as one $3,000 savings account growing at 1%, right?

eyePod

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Re: 529 for daughter in parents name or grand parents name?
« Reply #9 on: December 02, 2012, 06:30:46 AM »
I'd originally felt that we'd want to put all of our investments into the one fund to gain the most possible interest from compounding, and that if we separated it out, it wouldn't be as powerful.
That's not how compounding works. It has no effect how many buckets a given amount of principal is in and growing. Think about it -- 3 $1,000 savings accounts growing at 1% will earn you just as much interest as one $3,000 savings account growing at 1%, right?

I was trying to talk myself into the same thing and looking at the FV equation, this has to be true.  FV = PV*(1+i)^n.  For some reason I thought PV was in the exponent.  Man my finance class is from a long time ago.  You're exactly right grant.