Yes a potential risk and complication to be sure. I discussed this with Vanguard years ago. One usually has to designate a successor on a 529 account. The successor is the person that inherits the account (not the student beneficiary) in the event of death. But I do think this becomes part of the estate and has to be distributed back after it settles.
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Are you from CA? If not, I would suggest you take the UCs off your list as they give zero need based aid to out of state students and very very little merit aid.
In your situation, rather than move the 529 money around, why not look for colleges that give merit aid. There are plenty of very fine schools where this could be very substantial for your daughter, and would preserve that 529 for your other kids or for grad school.
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@paw_dab It might be easier to figure out what budget you are willing to pay and figure out what schools will most likely hit that budget (and your child would be happy to attend) than to try to complete some sort of complex financial gymnastics to shield ~5% of your saved assets.
This reminds me of old clients who would attempt complex tax plays to shield income from the IRS. I never wanted to point out the obvious for many: when you added up the cost of the tax play, the cost of the lawyers/accountants/business people involved in creating the tax play and the time and effort of the client - often times they weren’t saving money - they were just shifting who they paid.
Don’t let the tail wag the dog here.
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That’s really my question. Would not having savings hurt her chances of admission (with colleges that take need into account)?
The money in our 529s was mostly contributed by grandparents. We would just be transferring custody back to them to avoid having to report it. It’s my understanding that beginning in 2023/24 grandparent contributions and gifts won’t be considered student income.
The 529s were originally started by a grandparent and they were transferred to our names a few years ago because at the time we were told there would be a greater financial liability if they stayed in the grandparent’s name. Now, with the rules changing, we thought it might be better to put them back in the grandparent’s name. More than 90% of the savings was a gift from this grandparent so we’re not trying to hide money we have saved ourselves. I’m just wondering if there’s an advantage to treating it as a gift instead of our savings account. Transferring custody is really easy. It’s just a form and a notary signature. I don’t know if that’s just the case for our 529 plan or across the board.
If a school takes need into account during admissions and you have need - it could hurt chances of admission. The more need you have, the less attractive you may be to need aware schools unless there are other, more compelling parts of your application that supersede your financial need.
But again, I will recommend figuring out how much you are willing to pay per year for college and then run the NPCs at each individual college your child is interested in to figure out whether the costs will come in at an affordable level for you. Until you have a budget and know what schools most likely will cost for your family - you’ll just go round and round with hypotheticals.
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Need aware schools, depending on how much need, could hold against you.
But your situation is far from dire financially with no 529 - so doubtful.
If you needed 80%+ it could hurt. There’s an article a few years back about Lafayette that discussed them turning down a stellar student due to money - but it was the full monty. No chance that’s you.
The money was a gift from the same grandparent we would be transferring custody (back) to. We will definitely be spending it on college. The plan is a California plan and they allow the transfer of custodianship.
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Run a few NPCs with both scenarios - at privates
Yes, we’re from CA. She’s looking at a wide array of schools from Cal States to UCs to privates. My original question was really only pertaining to the privates on her list.
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Agreed, but in this case it’s simply a form signed by a notary. The 529s were funded by and originated with this grandparent. We would just be transferring custody back to them, still benefiting each child. I would be listed as the successor.
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Sounds like you have a plan.
This plan has Swiss cheese holes. What if something happens to the grands and they require skilled nursing care…their assets would be tapped for this…would this include the 529…or would you try to transfer it back at that point if this were to happen.
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Thank you for translating my original question!
"If they transfer the $100,000 designated for the younger children to the grandparents, it will not have to be listed on the FAFSA and it’s possible it will not have to be listed on the Profile either. "
If we transfer custody of the younger siblings accounts they would still be used for their college expenses and so I don’t think a gift tax would be an issue.
It doesn’t feel sketchy to us because the 529s were started and funded by this grandparent. We transferred the custody to our names thinking it would be a financial advantage but with the new rules, we probably should have kept them in the grandparent’s name.
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Well, not really! I definitely have some concerns about changing custody, some of which were brought to my attention in this thread. A lot can happen between now and when my youngest will be applying to college and I don’t want to put the money in their 529s at risk. I just want to preserve the younger siblings’ savings and make my oldest eligible for as much need as possible, while not hurting her chances of admission. It doesn’t seem fair that the younger siblings 529s would be counted now when their older sibling applies.
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Good question. I hadn’t considered that. The grandparent in question has long-term health insurance that covers skilled nursing care but still, you’re bringing up a good point.
Money is fungible, and the only money you can be guaranteed won’t be counted as available when your first child is off to college is money put away in qualified retirement plans.
I understand your concerns about money being available for your younger children but can you understand the moral hazard if families could say, “Oh, but that money is meant for someone else, something else, etc”. People ‘hiding’ their assets in their home equity is one of the reasons so many ‘meets full need’ schools count some amount of home equity towards college costs in their CSS forms.
Schools and the gov’t both see families as the primary pay source for their children’s college educations. Neither wants to give their money if the parent has money available.
This is why I continue to counsel you to figure out the budget you are willing and able to pay (for all your children) and making your college list with that budget in mind and finding the schools that fit that budget.
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"I understand your concerns about money being available for your younger children but can you understand the moral hazard if families could say, “Oh, but that money is meant for someone else, something else, etc”
Yes, definitely.
I wonder if even if the FAFSA or CSS didn’t differentiate between sibling 529s if some college financial aid offices do? I know there might not be an answer to this but what’s the point of having individual 529s if they all get lumped together when applying for aid?
Not sure if this was anything other than rhetorical but if that is a serious question, I think the only reason to have different accounts is to remove a step at the point of payment (I don’t think you can pay a bill for one student using a 529 under a different student’s name).
But you totally could have just had one 529 and rename the beneficiary once each child is done with school if none of them would overlap during the college years.
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They don’t differentiate. Because fact is…the money can be changed to a different sibling at any time. Thus why all 529 plans have to be reported on the financial aid forms.
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