<p>I was looking for some advice on 529 plans. We have some money set aside in CDs and since the market has stabilized, I think we'd like to open a NYS 529 plan, also for the tax breaks it offers.</p>
<p>We have three kids, a daughter who is a HS sophomore, an 8th grader and a 4th grader. I was thinking about opening up a single plan for my older daughter simply funding it, passing on the funds to the other two as they progress, but now I realize it would be better to have the 529 plans in the student's names (weren't they thinking about changing the law on student vs. parent assets?)</p>
<p>Any opinions on the one plan vs. three plan issue and if we should open in the kids' names or in the parents' names? Thanks</p>
<p>unless there’s a state tax reason to open more than one account (limit on contributions per accout that will give you a state tax deduction, etc) then there really isn’t any difference for FAFSA reporting whether you have one account or 3. All the funds will be considered parent assets. These parent-owned 529s are convenient in that the beneficiary can easilybe changed and you don’t have to worry about overfunding (if you plan for a private at $200k and “only” need to pay for a public at $100k, for ex.) These are parent-owned 529s with a child as beneficiary. There are also child-owned 529s but I assume you aren’t considering those here.</p>
<p>I did separate funds for my 2 kids so that I could: 1) contribute more $/yr (max out the gift amount for two kids rather than one); and 2) invest the money differently since there was 4 yrs between them. YMMV</p>
<p>Is it a state thing that there was the limit per year? I don’t think NYS sets a per-year limit, only total limit, but you can only deduct $10,000 (filing jointly) from income</p>
<p>The limit I was talking about was the Federal gifting max, it used to be 11k/yr/person, maybe more now. I don’t think there are state limits, but there is likely a limit on how much you can use towards a deduction on your state taxes. Somebody please correct me if I’m wrong, I’m not sure if states vary in this aspect.</p>
<p>By far the most common are the parent owned, because a smaller % of parent assets are counted towards the EFC than for the student.</p>
<p>I think the federal gift limit is $13,000 per person ($26,000 if both parents contribute) in 2010. But 529s are treated differently and larger gifts can be made with no gift tax ramifications.</p>
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<p>As far as the difference between a parent-owned 529 and a child-owned 529, the former can have the beneficiary changed while the latter is an irrevocable gift to the child and the beneficiary cannot be changed. To take 2 scenarios:</p>
<p>Scenario 1) open a 529 with the parent as custodian and child #1 as beneficiary. Open another 529 with parent as custodian and child #3 as beneficiary. If child #1 has money left in her account after 4 years of college, the beneficiary can be changed to be child #2. Both 529s are reported on FAFSA as parent assets because the parent is the owner of them both.</p>
<p>Scenario 2) give children #1 and #3 $26,000 each to open 529s in their names. These are called a custodial 529s or a UGMA/529s (assuming children are under 18 or 21, depending on the state). It’s an account that is titled in the child’s name (even if the parent is the nominal custodian) and can only be used for the benefit of child #1/3. If there’s money left, the children can withdraw it, paying the penalties and tax on any gains, but they can’t change the beneficiary of the account to child #2. When child #1 files FAFSA, her 529 is reported on FAFSA as a parent asset (all 529s are reported as parent assets, regardless of whose name they are titled in) but child #3’s 529 is not reported because it’s an asset owned by child #3, not by the parent.</p>
<p>Clear as mud? It’s complicated, and the child-owned 529s are somewhat uncommon, but they can be an effective strategy for lowering the FAFSA EFC. For Profile, however, I believe you actually do report sibling assets, along with 529s owned by grandparents etc for the benefit of the child, so something to be aware of.</p>
<p>Two additional points to stress: </p>
<p>1) once you open a UGMA/529, you can’t change its beneficiary.
2) entomom’s point above regarding the asset allocation of age-based 529s is a very good one. Some 529 administrators will automatically allocate assets in their 529s based on the beneficiary’s age. So a child who is within a year or two of college might have their funds weighted more heavily towards short-term bonds and money market funds, while a child who is 8-10 years away from college might be more heavily weighted in their 529 towards equities.</p>
It’s complicated, and the child-owned 529s are somewhat uncommon, but they can be an effective strategy for lowering the FAFSA EFC. For Profile, however, I believe you actually do report sibling assets, along with 529s owned by grandparents etc for the benefit of the child, so something to be aware of.</p>