In-laws want to start a 529 for our kid, what should I know?

[me1]

I have looked into 529s some time ago, and decided it did not make sense for us to invest in it.
Now, the in-laws want to do it. But they want us to find the one we like, open it and they will contribute the money.
I've done some reading here, and it seemed like people think that the ones run by vanguard (like Nevada) are better choices even if your state offers tax breaks (our state offers it, but the inlaws state does not). Not that this matters to us, since we do not plan on putting anything in it.  My understanding was that the reason for this is that the fees tend to eat up any advantages.

So some very newbie questions
1. what should i look for when choosing which 529 to open?
2. Is there a good page somewhere that has done these comparisons? or that can answer these questions I have.
3. Will we run into any tax issues if this account is open in our name but inlaws fund it? They want to put 30K a year in it. So not a small amount.
4. Or would it make sense for it to be in kid's name?
5. does it make sense to worry about whether this will impact any financial aid? SInce at least I plan to be FIRE'd by the time the kid is in college (if not my SO)? but obviously at that point I plan to have a stash to live off of, not sure if that would makes us ineligible anyway....
6. anything else I am not thinking of I should know about 529s?

[beer-man]

I’m sorry I can’t answer any of your questions but you are a lucky sob!
 Congrats on winning the in-law jackpot. My inlaws retired early with a stupid high pension and have no interest in helping with a 529 but would rather just buy our kids stuff


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[Dr. Pepper]

clark howard, has a good page on the various 529 options, with a ranking by state.

https://clark.com/education/clarks-529-plan-guide/

hope that helps

[cchrissyy]

they should be the account owners, not you, and the kid(s) be designated as the beneficiary

[bryan995]

We live in CA (so no tax benefits) and opened the nevada 529 for vanguard.  Our 9 month old is heavily invested in VTSAX :)

As soon as our first child had a SSN we front-loaded the 529 with ~$50k, with the goal of having ~150-200k 18 years from now.  529 is pretty awesome for college funding, tax free gains!  We are shooting for having enough to cover an in-state tuition per child, and will either have the child cover the extra if attending private or we we will handle via a non-529 account.

There are risks of over-funding the accounts and or the children not needing the money (no school/scholarships etc), so best not to over-fill.

If the in-laws have lots of spare cash, I would look into front loading (a couple can contribute up to $150K now in a single shot), effectively getting your money to work faster.
 
https://www.investopedia.com/articles/managing-wealth/072516/why-you-should-front-load-your-529-plan.asp

Some links:
https://regentatlantic.com/blog/529-gifting-extravaganza/

[me1]

they should be the account owners, not you, and the kid(s) be designated as the beneficiary

That makes sense to me too. But why?
They are the ones insisting we be the account owners!
Are there any negative consequences to us being account owners? That's what I am trying to figure out.

[MMMarbleheader]

i recently found out you can take out any scholarship money your kid gets without paying penalties.

We have the Utah 529 from vanguard and front loader $25k per kid. I don't think we will put any more as it should grow to cover full in state tuition which we will apply to full pay. Then any private schools, which are mostly need blind anyways, we will apply for aid.

[TravelStache]

they should be the account owners, not you, and the kid(s) be designated as the beneficiary

That makes sense to me too. But why?
They are the ones insisting we be the account owners!
Are there any negative consequences to us being account owners? That's what I am trying to figure out.

Do some research before taking advice over the internet.  In most cases it is better to have the parents own the account.  Although grandparent owned 529 plans don't get counted as assets for financial aid purposes, distributions for the benefit of the student will be counted as income for that student and impact their ability to receive aid the following year.   This often results in less aid being available compared to a situation when the parent owned the plan.  If possible, use a parent owned plan for the first 3 years and a grandparent owned plan for the last year.  https://www.savvyfi.co/single-post/Should-Parents-or-Grandparents-Own-The-529-Plan

[jjandjab]

they should be the account owners, not you, and the kid(s) be designated as the beneficiary

That makes sense to me too. But why?
They are the ones insisting we be the account owners!
Are there any negative consequences to us being account owners? That's what I am trying to figure out.

To answer your question - it seems that you being the account owner of the 529 is the best of the options. You won't have any tax consequences, but it may reduce need-based financial aid (but at the level they are contributing, that may not matter at all depending on how old your child is...)

The article below has some good information. The benefits and tax free earnings on a gift 30k per year  (tax free gift of $15k from each grandparent) will outweigh any negatives in my mind. As someone else mentioned, if they have the means, you could have them give $150k all at once, then not contribute again for 5 years.

https://www.savingforcollege.com/article/yes-your-529-plan-will-affect-financial-aid

[Much Fishing to Do]

When figuring out who is best to be the owner, do always remember that the owner is the owner in every sense.  I own a 529 for my kids and my parents also opened a 529 for my kids.  The one I own I know I can count on unless I decide to do differently with it.  My parents account and therefore account changes I have no control over.  They are extremely caring and reliable parents/grandparents, and yet they could (very reasonably) withdraw the money if they hit their own money troubles in retirement, they could (very reasonably) change the beneficiaries to include and split among any new grandkids that come along, or (very reasonably) decide I am doing so much better financially than my siblings that my kids really dont need the help as much as the other grandkids and change the beneficiaries right before we plan to use it.

[Lucky Penny Acres]

Not saying this is the most ethical approach on taxes... but I have seen it mentioned on other websites in the past around 529 discussions so I thought I would pass it along:

Have your in-laws just gift you / your spouse the amount of money they want to contribute for your child, and then you can decide whether to contribute it to a 529 plan that you own with your kid as beneficiary or put it in a UTMA/UGMA account for the kid or do whatever you want with it.

If you make the 529 contribution to your state's 529 and have enough income, you could arguably still claim the state tax deduction for your state.  Depending on state tax rates, the current tax deduction may make up for a good amount of the higher investment fees. You would need to run your numbers and see the impact of the tax deduction versus specific higher fees.

[myrrh]

I agree with TravelStache, except use the grandparent's account the last two years of school. The FAFSA was changed a a year or two ago to use the prior prior year's tax info rather than the prior year, since most people haven't even started filing their taxes for the previous year when FAFSAs are due. Of course many students take five years to graduate instead of four so the advice still stands, depending on how easy their class schedules are to coordinate.

When I started my kid's 529s, the best (lowest fees) were Utah, New York and Nevada. That may have changed, check the fees for all plans you (or grandparents) are considering.

[EnjoyIt]

i recently found out you can take out any scholarship money your kid gets without paying penalties.

We have the Utah 529 from vanguard and front loader $25k per kid. I don't think we will put any more as it should grow to cover full in state tuition which we will apply to full pay. Then any private schools, which are mostly need blind anyways, we will apply for aid.

This is exactly what we are doing. $25k at birth should be good enough by the time they are going to college.  If they get scholarships then great.  If they need more they will either take out loans or we will cash flow the extra that is needed or a combination of the two.