Have a one year old daughter and would like to start a college account for her. What are the benefits of a 529 plan over a brokerage account or some of the other account types out there?
I think you would incur the 10% penalty if it's not related to the beneficiary's non-need for education funds.cloeren13 said:
Could I pull the money out of a 529 for personal use if needed in an emergency? If so, what is the penalty?
Coverdell ESA functions exactly like a Roth IRA but there are both contribution limits, income limits, and limits on what distributions can be used for. Family member of mine is looking into setting one up for our one month old daughter at the moment.Aggiesincebirth said:
Would it be possible/legal to ever open a Roth 401k for your child? I am not familiar with the tax benefits of a 529 but I am interested in the possibility of this.
Specifically speaking to the Roth IRA question, you can open one for a child but the contribution is limited to whatever the child himself earned in a given year.Aggiesincebirth said:
Would it be possible/legal to ever open a Roth 401k for your child? I am not familiar with the tax benefits of a 529 but I am interested in the possibility of this.
1. Fund (or have someone fund who isn't income limited out) a Coverdell ESA to the max contribution of $2k annually. Invest in mutual funds every year from ages 1 through 18 and you should have over $100k tax-free to go towards college at age 18.cloeren13 said:
Have a one year old daughter and would like to start a college account for her. What are the benefits of a 529 plan over a brokerage account or some of the other account types out there?
What types of grants or low interest loans were you expecting to be able to get? Aren't grants typically need-based according to family situation, and aren't student loans something that should be avoided generally?kayakag said:
So my mother-n-law is hoping to help with our kids' college. Each of my kids have a 529 with about 10K in them.
Her financial planner has told her to NOT have any money in my kids' name, as this will disqualify them for student financial aid such as low interest loans and/or grants.
WTF? If this is true, should I just transfer the funds from one kids' account to another when it comes time for financial aid application?
I do happen to be a CPA but that is outside my area of expertise...if i had to guess, there would be tax implications around the child's earnings sufficient to wipe out the benefits of that sort of structure.Aggiesincebirth said:
Would me giving hypothetical child $5,500 a year in allowances be considered money that they earn? Seems like a great way to get around the limits and set your kid up for a long term tax free account.
Seems like as long as they are dependent it wouldn't be considered income. Just money a parent is giving to a kid.GE said:I do happen to be a CPA but that is outside my area of expertise...if i had to guess, there would be tax implications around the child's earnings sufficient to wipe out the benefits of that sort of structure.Aggiesincebirth said:
Would me giving hypothetical child $5,500 a year in allowances be considered money that they earn? Seems like a great way to get around the limits and set your kid up for a long term tax free account.
If you focus on fully funding yours and your spouses tax advantaged retirement and savings accounts and the child's education accounts first, you can figure out a tax-sheltered way to transfer the wealth you earn to your child later.
Edit: I looked it up and withdraw my previous speculative objection. As long as the earned income is for legitimate work, it appears you could do this for chores done around the house. To maximise just make sure they are paid enough to max-contribute to the Roth IRA ($5,500) and little enough so they don't have to file a tax return ($6,300). I have not looked into what tax implications on your return would be for income of a dependent.
Good point. I would think he could structure it such that if the kid does do chores (as she should once she is able to) then he could pay her to do them and contribute the earned amount paid for the chores to an IRA in her name.libertyag said:
He mentioned "giving" which would not be taxable but can't fund a Roth without earned income.
Out of curiosity why did you settle on Utah?ktownag08 said:
Use the Utah 529 and have been happy with it. We keep it to $200/month and it's doing well.
I have done that with my three children, but then I have a business. Not sure how it would fly if the parents had no business. I could see that being challenged. Maybe someone else has come across parents doing this. The only time I have seen it with my own clients was when the parents had a business.GE said:Good point. I would think he could structure it such that if the kid does do chores (as she should once she is able to) then he could pay her to do them and contribute the earned amount paid for the chores to an IRA in her name.libertyag said:
He mentioned "giving" which would not be taxable but can't fund a Roth without earned income.
Same here...been pleased with the product so far and it's easy for me and my parents to do a monthly small payment in to the fundktownag08 said:
Low fees and good investment options that I was familiar with (Vanguard products).
If the child is working for a parent (not a parent's corporation) and under 18, Social Security wouldn't apply and neither would federal withholding unless the amount of pay was much larger than is being talked about.Husky Boy Jr. said:
in order to have earned income I don't see how you get around payroll taxes
I set my Utah plan up in 2007 when our first was born. Reasons why I settled on Utah:Quote:
Out of curiosity why did you settle on Utah?
Challengelibertyag said:
The new beneficiary can't be a random stranger though.
Pardon?Stagecoach said:Challengelibertyag said:
The new beneficiary can't be a random stranger though.
I'd have to check but I'm pretty sure you can add just about anybody as beneficiary to the 529.libertyag said:Pardon?Stagecoach said:Challengelibertyag said:
The new beneficiary can't be a random stranger though.
GE said:
www.fidelity.com/retirement-ira/roth-ira-kids
According to Fidelity, earned income for the child can come from a job or self-employment. The examples given are mowing lawns, babysitting, and shovelling snow. I'm not advocating lying to the IRS so don't just say they did these things and contribute for them, but if they do legitimate work of this nature there is no reason you can't contribute for them up to their qualifying earnings.
Where this was first mentioned, the poster indicated that if the child did not need or use the funds in the 529 it could be passed on to other family members or a random stranger. That cannot be done, only family members are qualified to be the new beneficiary.Seanzy2012 said:I'd have to check but I'm pretty sure you can add just about anybody as beneficiary to the 529.libertyag said:Pardon?Stagecoach said:Challengelibertyag said:
The new beneficiary can't be a random stranger though.