Author Topic: God father thinking of starting 529 plan  (Read 560 times)

Edmundjb

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God father thinking of starting 529 plan
« on: August 03, 2019, 10:05:23 AM »
One of my best friends is having a baby soon and they asked me to be the god father of their child. I'm thinking of possibly starting a 529 plan for the child. Am I allowed to open this account myself for them, or would I need to go through my friends and put it in their name? Also, is this even the best idea, or is there anything else anyone would recommend I do for my god child? I don't know much about 529 plans so this is all new territory for me, so any books or articles you guys think are useful, feel free to recommend. I'm open to any and all ideas.

reeshau

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Re: God father thinking of starting 529 plan
« Reply #1 on: August 04, 2019, 10:26:47 AM »
It's great that you are taking your responsibility so seriously that you are thinking ahead to something many parents don't.  I do see a couple of problems, though.  What are the parent's plans for college savings?  While You might think of this as a great surprise for the child, it should not be a surprise for the parents.  They are the people onset the strategy for their child, and supplanting them, whether intentional or not, is asking for conflict.  You could just deposit money into a 529 that they start, and are the custodians of.

In my opinion, the most famous resource for learning about 529's is actually pretty good:  https://www.savingforcollege.com/

ZMonet

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Re: God father thinking of starting 529 plan
« Reply #2 on: August 04, 2019, 10:40:38 AM »
Agree with Reeshau about letting the parents know, which is probably something you were going to do anyway.

As a practical matter, I believe you can start the 529 and name or change the beneficiary later. 

TPGW

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Re: God father thinking of starting 529 plan
« Reply #3 on: August 05, 2019, 12:00:17 PM »
Definitely contributing to the parents account would be best.  Within a family it's easy to start an account in the name of the parent and then later change the beneficiary to the kid.  I've started accounts in my name before my kids arrived and then changed the beneficiary to them later. However, changing beneficiaries to anyone not a blood relation can have tax consequences and would not be advisable.

Car Jack

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Re: God father thinking of starting 529 plan
« Reply #4 on: August 07, 2019, 01:07:05 PM »
There's pros and cons to either way.

I'm sure people are concerned about FAFSA and that 529's from non-parents are considered "student income" for the following year.  And student income is counted more heavily than any other student or parent money.  A parent owned 529 is a parent asset and only counted "towards college cost" at about 5.56% right now.  BUT (that's a big but) if the student doesn't use the money until his later years, it doesn't get counted until later years.  So for example, he could use it at the beginning of his senior year and is not counted at all.

A monkey wrench is if a private college financial aid application asks (as my son's college does) if a 529 plan exists, owned by any non-parents with the student listed as the beneficiary.....and it's honestly answered, then (sound of the buzzer), they count it however they want to in their private college-ness.

A trick there is to list yourself as the beneficiary (which is legal) and at the point you're ready to give the funds to the student, change the beneficiary and give the funds to the student.  BAM....he gets around all the private college stuff without even lieing.

Of course the kicker anyways is that if you have any money, the only "aid" you're likely to get is high cost loans with front end loads (like staffords).  So yay.  You get sucky loans for all this work.

Wanna get more money?  Have the kid go to a high school with a crew team (those long skinny rowing boats) and go to a college with a crew team.  It is the easiest team to get on and get a scholarship for.  My sons friends who are on the team get 50% of their total cost paid.


reeshau

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Re: God father thinking of starting 529 plan
« Reply #5 on: August 07, 2019, 03:09:57 PM »
A trick there is to list yourself as the beneficiary (which is legal) and at the point you're ready to give the funds to the student, change the beneficiary and give the funds to the student.  BAM....he gets around all the private college stuff without even lieing.

It might be legal, but as @TPGW points out, it is taxable in this case, since the new beneficiary is not related to the old one.  (OP said this was for a best friend)  This means it would be considered a non-qualified withdrawal, subject to federal income taxes plus the 10% penalty, as well as state income taxes.