When first enacted, there was concern that these plans would count against financial aid, but clarification was made to ensure that they currently don’t.

At this point, think of 529’s like Roth IRAs, they are a wonderful tool due to the tax advantages. Just because I know Congress may eventually want to change/decrease the tax advantages of both plans, it doesn’t stop me from using either of them. In fact, the opposite is true. Better to get into them now before they change them and hope there are enough people using these vehicles to either prompt Congress to not take any action or grandfather existing plans.

@Mossy: The key words there are “for the moment.” Every financial analyst out there is sure that Congress is going to change this so that the shelter goes away. It might help a student in college for the next year or so, but the current loophole is not going to help a toddler.

I still think that Trent should think seriously about this. At this time, parents only need to contribute 5.6% to college – students, on the other hand, must contribute 20% (and it used to be 35%). If it were my child, and it was time for her to go to college, I would hope that most of the assets were in my name so my child doesn’t have to wipe out her savings to go to college.

Some schools are even looking at the amount of equity available in the parents’ home, and factor that into the financial aid equation.

Even if the parents NEVER intended to take a equity loan to pay for their kids’ college expenses!

All the more reason for parents to max out their 401K and IRA accounts (Roth or not) – those are about the only assets a school can’t consider in making the financial aid calculation.

>custodial 529s are not counted as either parental or child assets!

529s don’t do that. The plans that do force you to go to your state school. My parents have the opposite bias (insisted I go to a private school for college), but the state school may not be the best one for your kid.

Trent, what do you think of prepaid funeral plans? Do you have one?

http://www.savingforcollege.com/intro_to_529s/index.php?general_faq_id=4

In fact, if you actually read the article, you will find that Congress made a mistake and custodial 529s are not counted as either parental or child assets! For the moment (until Congress fixes this oversight), custodial 529s are MORE sheltered for the purpose of getting financial aid.

If you are adamant about giving them some money, you could always put part of it in the custodial account(say the gifts) and the rest in the 529. That way they enjoy both the tax advantage and still get some money.

Kudos to you for your planning ahead and posting such thought provoking points. Thanks

Trent, I side with those arguing you should keep the money in your name, rather than the kids. I don’t remember the exact percentages, but assets in the child’s name count much more towards the “Expected Family Contribution” than assets in the parent’s name. I would call up the financial aid advisor at your local university and ask for advice, since this one little step *could* end up costing your kid thousands in tuition money he could otherwise get financial aid for. You could still give it to your kid to start a business if that’s his plan instead.

I can say this: your kids are lucky you’re willing to pay for their college education. Mine didn’t. I had to pay it all myself. In some ways, though, I feel I turned out better. Since it was *my* money, I felt inclined to put it to the best use and study hard and learn, rather than just partying away.

Then again, my parents made me pay my own way, and it didn’t do me much good. I’m still paying for it now!

If you throw unfunded grad school in there (which is the case in some fields where there just isn’t the money, i.e. vet school), you’re looking at possibly $100,000 in school bills for grad school alone. Is it worth it? I dunno, I’m not in vet school:)

Trent, I agree with MVP about giving full access to a large sum of money to a 21 year old. I know what I would have done with that kind of money at that age. Remember your life before financial armageddeon. Kids have to make mistakes. I did, you did, anyone on a good financial path could probably describe their own learning mistakes. Do you really want to fuel their armageddeon? I know you will raise them right, but kids rebel. There is an age where many kids think their parents have the world all wrong. Are you willing to risk your child blowing the money at 21 on a sports car and then the next year deciding that and education makes sense after all. Would you be willing to foot the bill after they blew the savings? Would you be resentful? Would it cause and uncomfortable rift between you and your child? I know you cited examples such as starting a business. However, if you don’t put restrictions on the money, are you OK with the very real possibility that a child with very little real world experience could blow years of your savings on something trivial?

Don’t get me wrong, I love everything else about your plan. Just not the unrestricted access at 21. At least wait until your children are much, much older before making such a decision! If you are going to do it at least make it 30.