529 Plans....question on mechanics/set up

Cool Texan · 11-14-2006, 09:42 AM

So I need to set these up for my girls, but have a question that maybe you Financial Advisor types could pro-bono on.

My girls would be the ones going to college, but I would be the one paying the bills. Thus, shouldnt I list myself as the beneficiary of a 529 Plan? If not, what is the reasoning or benefit to listing my children as the beneficiaries? Also, can you confirm that if one child does not go to college (gulp!) that I could transfer her $$ to the other child to further help pay for her expenses.

Thanks!

Snug 2 · 11-14-2006, 10:47 AM

Cool Texan, I might be able to assist you.

You would be the owner of the account (UTMA/UGMA rules are different). Your child would be the beneficiary. You would also want to put down a successor trustee just in case you get eaten by a huge tuna or something. If one child elects to not go to college, you can transfer the account to the other child (within limitations). As far as funding, if you are in Oregon, you can generally deduct the first $2,000 off your income taxes each year.

Now, let me say there are a lot of additional rules that you need to be aware of. Read the paperwork very carefully.

If you have additional questions, please email me at andrew@wfgadvisors.com.

529 plans are a great way to assist your kids. I wish more people would use them.

R House · 11-14-2006, 10:50 AM

Ditto to snug2's reply, just make sure to use the Oregon approved plan to qualify for the tax deduction.

Merch · 11-14-2006, 12:05 PM

My advice would be to check into the plans and find out which state offers the plan with the lowest administration fee. New York is one plan with low fees and I think Utah.

You don't have to use the one sponsored by the state you live in. Many plans allow you to set it up and contribute on-line. I would be wary of plans with high fees or possible insolvency. Alaska comes to mind. I remember that people in Alaska didn't want to use their own plan.

Also if your kids are the "owners" you or grand parents, or any willing benefactor, can contribute to the plan up to 11K tax free. If you "own" the plan this may not be as possible.

If your kids end up not going to college you should be able to get some benefit as well minus any penalties.

Snug 2 · 11-14-2006, 12:29 PM

Quote:

Originally Posted by Merch

My advice would be to check into the plans and find out which state offers the plan with the lowest administration fee. New York is one plan with low fees and I think Utah.

You don't have to use the one sponsored by the state you live in. Many plans allow you to set it up and contribute on-line. I would be wary of plans with high fees or possible insolvency. Alaska comes to mind. I remember that people in Alaska didn't want to use their own plan.

Also if your kids are the "owners" you or grand parents, or any willing benefactor, can contribute to the plan up to 11K tax free. If you "own" the plan this may not be as possible.

If your kids end up not going to college you should be able to get some benefit as well minus any penalties.

Merch, while I would agree there are some lower fee plans out there, it will be important for the owners (generally the parents) to look at fee and tax implications of each state program. Anyone can buy any state plan. That is not an issue.

The parents or grand parents will be the owners. The child is not the owner of the plan. As far as gifting to the plan, the annual gift tax exclusion is $12,000 this year, and no matter who owns the plan (parent/grandparent, friend) any individual can gift the $12,000 annual exclusion amount into it. There are maximum contribution limits that must be taken into account as well.

One other item. A child can only have one 529 estabilished under his or her social security number. If the parent opens one for the child, the grandparnet cannot open one as well. The grandparent could open a Coverdell ESA though.

As stated earlier, there are lots of rules. Become familier with them.

Merch · 11-14-2006, 12:58 PM

While reserching 529's I found that friends had opened accounts for thier children in several states, at least three. The parents are the owners and the children are the beneficiary. This allows you to move money around between them in a tax defered way by moving money to or between kids.

In fact the paper work for New York describes what to do if you have accouts in other states. The FAQ for New York states that the parent, grandparent who ever can open accounts for same child.

The advice given was you would be fool not to have more than one states 529 plan.

Perhaps there are diferent issues if you live in a state with an income tax.

I did forget that the 11K had gone up to 12K tax free, thanks for the catch.

Snug 2 is exactly right that they are confusing and a great deal of research is encouraged and needed.

Snug 2 · 11-14-2006, 01:11 PM

As far as multiple plans per child (beneficiary) it is confusing... This is where both Merch and myself are partially correct/wrong, and one of the many items that are confusing.

I will use the two Oregon plans for this example. Mom and Dad open an Oppenheiimer plan for child. Grandparents can either fund this plan or open another Oppenheimer plan. The grandparents could not open another 529 plan at MFS or any other plan sponsor though. So, inside one plan sponsor, there can be multiple ones set up for the child. Just not multiple plan sponsors. It is far easier in my mind to have one plan and everyone funds into it.

Have I seen multiple plan sponsors before for one child, yes. Not everything is always linked correctly and sometimes it happens.

Save early and save often.

Merch · 11-14-2006, 02:49 PM

Snug 2 is right. Confusing. I'm not a investment guy, more of a pension dork.

Find what works for you and dump as much as you can afford to into it and get the grandparents involved if they are financially able.

Gus Orviston · 11-14-2006, 04:57 PM

Good thread.. I have 3 529s for my clan. WRT to beneficiaries some things to keep in mind are to have a Estate plan..at a minium a will, but a trust will preserve the money better. In addition have a TERM life policy in place -- I have put enough down to allow Mom not to work and establish fully funded college account ,+a bit more, in case I take the wrong step off a rock or don't return from the big blue for some reason.

gus

garyk · 11-14-2006, 07:57 PM

I was considering opening 529 plans for nieces and nephews that live in another state.

Can I make their parents the owner/trustee or does if have to be the person funding the plan.

Finally, for a person in Oregon, are 529's funded with pre-tax or post-tax dollars? In other words, would my contributions to these 529's lower my Federal AGI?

Cool Texan · 11-14-2006, 08:44 PM

All part of the plan Gus. We have the will in process right now.....term life was set up last month and is in full effect....and now we're getting the 529's started up soon.

Merch · 11-14-2006, 09:19 PM

Gary, one of the cool things about the 529s is that anyone can fund them. If I have one for my kids, I can put money in, my parents can, you could if you felt particularly generous.

I think you can start one for your nieces and nephwes but you would need the parents ssn and other stuff to make them the "owner". If you could get them to set them up you could be the primary contributor if they are unable to put funds in.

Do look at different state's plans. Some offer guaranteed rates of return and a variety of other features. But, some make money by charging significantly higer administrative fees than others. A friend did extensive research and determined that New York and Utah had the "best bang for the buck", others have validated this as well. It should not come as a suprise that New York, the finiancial capital of the world has the lowest admin costs since there is no way they could get away with "hidden costs". The same goes for Utah because of the general thrifty nature of the citizens there.

Merch · 11-14-2006, 09:21 PM

Oh, I almost forgot. You can sign up for NY and I think UT online.

Gus Orviston · 11-15-2006, 12:19 AM

CT.. great.. we chose the estate path and set up a trustee... that way the kids as young adults won't get a windfall of big daddy bucks.. the payout will take a bit of time

That will keep them thinking of me.

529s are not pre-tax dollars, however, grow tax free as long as the use is for education in one form or another.

gus

greenbuttskunk · 11-15-2006, 10:36 AM

My wife and I fully funded our sons when he was born, 3 years ago. We put in a set amount that with average projected growth should at least get him into a decent school. We opted for the utah fund and ma very happy with the growth and fees so far.