I don’t see a specific forum for college funds so I hope I can ask this question here. We never started college funds for our kids because with a family of 6, there wasn’t really a lot of extra money to do so. Now we are more financially able to contribute to funds or save at this point. Is it too late with a first kid heading to college this fall and a high school sophomore and two eighth graders coming down the line? I see our kids taking out the max federal loans, but SOME of the other expenses we will be able to pay. Do we start dumping money into college funds or just save it and pay as much as we can as we go along? Any advice would be appreciated.
Isn’t “dumping money into college funds” or “just save it” the same thing only one is specific for college (presumably you mean 529) and the other isn’t?
If you can put it in long enough to make some tax free earnings, I’d put it in the 529. If you are just going to start drawing out whatever you put aside, it doesn’t seem worth it to me.
You also need to consider if you get a state tax break on the money. I live in a state that used to give a pretty big break so even if the money didn’t make much in the fund.
@ClaremontMom “Isn’t “dumping money into college funds” or “just save it” the same thing only one is specific for college (presumably you mean 529) and the other isn’t?”
That is why I asked! Setting it aside in just our bank account is not the same thing as starting some kind of fund somewhere else. I wanted to know if there is a tax benefit or something that would guide us to a short term fund at this point.
The money grows tax free if you use it for education. There can be state tax benefits. If your children own their own accounts, they will be counted as parents’ assets for FAFSA purposes. If the younger children have them in their names (account owner) those accounts will not be included as parent’s asset for older kids. That might not make any difference if you do not qualify for need based aid but it might.
If you can write off your contributions to your 529 on your state taxes, I’d say it’s worth it. When my kids work over the summer, I’ll dump their money in their 529 so I get the tax break, even though we’re pulling it right back out to pay their portion of tuition. Check to see if your state gives a deduction!
“If the younger children have them in their names (account owner) those accounts will not be included as parent’s asset for older kids.” - Is that true? I did not know that. If that is the case, is there any advantage to holding a 529 in the name of the parent? If in the name of the parent, regardless of which child is the beneficiary, it would count as an asset for all the kids.
check out what benefits your state offers, plus remember most likely there’s a yearly fee to operate the account. so for your oldest two, not sure it would make sense.
Depending on your situation, as a parent, you might be able to dump some of your assets into your younger children’s accounts, which would lower your assets and increase your need. If your older children get accepted into full needs met schools, it could maximize their financial aid. Generally, the schools take all/most of a student’s assets and only a fraction of a the parent’s assets, but none of the younger children’s.
With a family of 6, you’re probably getting hurt by the new tax law. Be sure to take that into consideration before you lock money away in a 529 plan
Yes, it’s true. A sibling is not expected to pay for a brother’s or sister’s college expenses. A 529 account owned by a parent, regardless of who is named as the beneficiary, is controlled by the parent and by changing the beneficiary can be used for any child (or anyone, for that matter).
Control. A 529 account in the name of/owned by the child is money that is legally owned by the child, and the child will legally gain full control of the account upon reaching the age of majority. At that point, the child will be legally entitled to do whatever he/she wants with the money.
If the younger child’s account is owned by the child, this would certainly reduce the parent’s assets that are required to be reported on FAFSA and Profile. It would also be a gift to the younger child account owner, and taking the money out of the account later to use it for a purpose other than for the benefit of the younger child would be unethical and likely illegal.
^I understand the control point. Has this always been the rule? I’m just surprised that I did not realize this till now.
I have one child receiving some financial aid. It would benefit me to at least move some of the other kid’s 529 plans to my other kids. Especially the amounts that I know they would be using.
So let me get this straight. The account that you want to move money from is owned by you (or the other parent). The account or accounts that you would move the money to are owned by the other kids. In other words those accounts for the other kids are custodial 529 accounts, also known as UTMA/UGMA 529 accounts. Is that all correct?
^Right now I have one account owned by myself, the parent. So that is the from account. I do not have any UTMA/UGMA 529 accounts. So I would establish a new UTMA/UGMA 529 account as the to account.
^^^
What you are proposing would shield the assets in the UTMA/UGMA 529 accounts from a FAFSA filed by a sibling. The main drawbacks are, first of all, the control issue once the account owner reaches the age of majority, and second, some (many?) Profile schools will consider a student-owned 529 account to be a student asset (not a parent asset as is the case with FAFSA), with the resulting effect on need-based aid.
Is the total amount of your assets, including the 529 account you currently own, more than the protected asset amount for your age and marital status? If it isn’t, I don’t think you’ll see a benefit.
My child who is receiving financial aid is going to a Profile school. So maybe the actual impact here is a big deal if I had separate accounts vs one parent account. In fact, I believe there were some questions on the profile asking about such accounts. I plan to do a bit more research. Regardless, thanks for the info. You guys are really sharp in here understanding all the rules.
OP - I apologize if I got offtopic a bit. Hopefully it was valuable for you too.
It is never too late to open a 529 account. Even if you transfer money from another savings/investment account to a cash equivalent in a 529 account for a short period of time before tuition is due, you will avoid tax you would otherwise pay on the earnings in the 529 account, however small they may be.
@user4321 can you explain that? Please and thank you
A 529 account is an investment vehicle. The money you deposit in a 529 grows, depending on how the investments do. You do not have to pay capital gains taxes on the investment earnings.