Anybody have a 529 Plan for their kid/grandkid?

[(Wildcat)]

We recently had our first child and want to start a college savings fund for her.

I feel like a 529 plan would be the way to go since the money grows exempt from federal taxes.

I'd love to hear some general thoughts about 529s from anyone familiar with them and I was specifically wondering if I should even bother with the KY plan since there seems to be no state tax benefit from owning that one and it hasn't historically been as good as others, such as the Utah plan (which I have heard is the best).

 

[Boogie Fan]

And does anyone know if you can start a 529 for someone who isn't your kid/grandkid. My niece (by marriage) had a kid a couple of years ago and I am his godfather. I have an account that I put a few bucks in a few times a year. I planned on it being money to take him to Disney in a few years or something like that, but the more I see the family dynamic I feel like a nice chunk of change from me might be his only shot at college. I don't have any kids so I know zero about 529 plans.

 

[crazyqx83_rivals88013]

You're gonna want to do a 529 savings plan, not a prepaid plan.

You might wanna call someone like fidelity or a local financial advisor for answers to your other questions. Pretty sure once you set up a 529 you can only transfer it to that person's sibling. As far as being able to set one up for a non dependent relative, that's beyond me. Seems like you could get around it with a gift scenario, but the necessity to do so would be kinda ridiculous.

 

[UKGrad93]

A quick search found the answers to some of the questions. Looks like you can set the plan up for anybody & change the beneficiery if needed. I have one for my daughter through Edward Jones. My wife may use some of it for a post masters. Depending on your age when the kid goes to college, there can be an advantage to just having a Roth IRA. It grows the same, can be used for your retirement, but can also be wirthdrawn without penalty for some expensses if you are 59.5 or something.

 

[BlueRaider22]

We have one for our daughter. The idea is that you want to "predict" how much the child will need for college.....then aim for just below that amount to help prevent going over and losing money. Umm, yeah, that sounds like an exact endeavor......

Interesting enough, I had a patient who had a nice sized 529 plan for their kids. One kid went off to college (and used the money) while the other went into the Navy before going into college (and didn't use the money). So, the parents were stuck with thousands of dollars in the plan.....and couldn't use it without taking the massive penalty. They went to their financial advisor who asked, "Well, have you thought about going back to school?" My patient laughed at first (since he was retired), but then got a great idea........

.....so, long story slightly shorter......my patient and his wife moved into family housing while he enrolled at the University of Hawaii for a semester. They've done this twice thus far.....and plan to do it again.

 

[BlueRaider22]

Moreover, he obviously took a full "load" of classes while there......philosophy, hiking, ocean kayaking, fishing, etc.

 

[crazyqx83_rivals88013]

I have a 529 in Maryland; actually two, one for each kid. Each state is slightly different, but I suspect my experience is typical. It was a sound way to make sure I had the amount of money I needed to cover every contingency. And I got a break on state taxes with it. If you have more than one kid, you can transfer money from the first kid's account to the second kid.

They are pretty lax about what can be covered, so spending a moderate amount of excess isn't going to be a problem for me, but you don't want hundreds of thousands of extra dollars parked in a 529. The way college expenses are rising, I doubt you miscalculate by putting too much in, unless the child just decides not to go to college.

There is a bit of record keeping involved, but I doubt the IRS is coming after a person who has a credible amount of spending flowing out of an account. It can work fairly smoothly: My daughter just bought her first semester text books; it's an amount of money in four figures. She paid with one of my checks, and I called the 529 administrator and they moved an equivalent amount of money from my 529 back into my checking account. When she paid her first semester tuition, the money just came out automatically.

4 figures for books?

-bookstore sells books for a little over a G.
-kids use books
-bookstore buys books back for $27 4 months later.
-kids go drinking
-bookstore resells books for $975.87
-kid picks up free t-shirt for signing up for a credit card on the way out of bookstore.

Sally Mae is the biggest predatory lender on the planet.

 

[BlueRaider22]

^Freshmen buy books. Savvy sophomores and upperclassmen go to class for the first few wks......then decide what books they actually need........and often the need is 1/10th of the whole. If you spend 4-figures on books you are getting ripped off moreso than usual.