Ask the Readers: How can we help pay for nieces’ and nephews’ education?
Published on - November 30th, 2012 (by Ellen Cannon) Strategies for saving for college haven’t been discussed much on Get Rich Slowly over the years. And yet student debt has been a regular and pressing problem for many. Saving before you get to college seems like an important financial step.
Reader Lynn K. wanted to ask the readers several questions about saving for college – for her coming nieces and nephews, not even her own children. How generous is that? So here are Lynn’s questions for you:
My brother and sister-in-law are about to have their first child, and my husband and I would like to set up some sort of college fund for the child. Unfortunately, we’re not sure where to start. The first question is: How much should we contribute? We don’t intend to have any children of our own, so we can afford to pay quite a bit toward their child’s education. However, what if they have four more kids? What if our other in-laws have several children? We want to be able to be fair without bankrupting ourselves, and we don’t want to go through all the trouble if the money we contribute barely makes a difference.
The second big question we have is: How or where to invest the money? I’ve done some research and found 529 plans, but I’m concerned about how much control is lost with those plans (and where the money can end up) if the child in question doesn’t finish college or chooses not to attend in the first place. Ideally, I’d like to set up something that allows my husband and me to distribute the funds once per year when the child is enrolled, or, if he or she chooses not to go to college, as a lump sum later in life. So how can we get a decent return on our investment and maintain control over the distributions?
The third and final question is a little stickier. My husband’s parents also want to set aside money for their grandchild to get an education. They have inquired about combining efforts. They have a lot more money than we do and will almost certainly contribute more than we will, especially for the next five to 10 years. I am happy to share planning information and work together to set up accounts, but I am very hesitant to set up a single account that we both contribute to, because there’s always some chance that we have differing opinions on how the money should be distributed and the last thing I want is to get into any kind of dispute over money where family is concerned. Do you think that the financial benefits (if any) and convenience of having a single account outweigh the risks of getting into a financial relationship with family? If not, how can I tell them about my misgivings without sounding like I don’t trust them? On that last point, I do trust them, and I believe they make sound financial decisions; I just don’t want to combine finances with anyone other than my husband.
When I’ve researched articles on saving for college, two of my go-to sources have been Joe Hurley’s Savingforcollege.com, which provides a comprehensive look at 529 plans in every state and Q&A’s on everything related to college savings, and Mark Kantrowitz’s Finaid.org, which covers loans, scholarships, savings programs (including 529 plans, UGMA/UTMA custodial accounts and many other methods), and military aid. These will help you, Lynn, as well as anyone else who’s starting to save for their children’s – or someone else’s children’s – education.
So, readers, do you have any other tips or advice for Lynn and her husband?
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We have a 529 for each of our children. You can choose among plans. It benefits us because we get a state tax deduction, up to $2k per year.
If the child doesn’t use the benefit, you can change the recipient to ANYONE. You can even use it YOURSELF!
So say they do have 5 kids and the first one ends up with $100k in his account. But he gets a full ride to Harvard or joins the army or whatever and doesn’t need it. Allocate it to kid #2. Or kid #3, 4 or 5. Or split it between the other ones.
The money grows tax free. Ours have actually grown even through the recession.
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If I followed the story correctly, there are (or will be) nieces and nephews on both sides of your family–from your siblings and from your husband’s siblings. Your in-laws probably want to contribute only to their grandchildren’s education, not the grandchildren of your parents. So an easy way out of contributing to their fund is to tell them that you are setting up an account for all your combined nieces and nephews.
And that’s what I think you should do: set up one (non-529) account for the future education of all nieces and nephews. Contribute regular amounts that you can afford to the account. Right now, you have no idea how many offspring there will be. But in 16 or so years, you’ll have a much better idea of how to divvy up the money.
Don’t worry that your money will be too little to make a difference. As the mom of a college sophomore and a high school senior, I can tell you that every little bit helps, even if it only pays for one semester of tuition or books.
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I don’t believe you can have one 529 that disburses to multiple recipients (the official term is beneficiaries).
I suppose it might be possible to do something with changing beneficiaries, but I’m not sure if you can do that multiple times per year.
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You can change the beneficiary once each day, as long as they are in the same family.
So if I start a 529 for my niece, and then my husband’s brother has a son (a nephew), I can us the same 529 for both, EVEN IF THEY ARE IN COLLEGE AT THE SAME TIME.
I have only one 529, but I have two kids of my own, and younger nieces and nephews. If there’s any money left when my own girls are out of school, I can easily use it to support our siblings’ kids.
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The first of my nieces an nephews arrived a couple of years ago
My brother and SIL let us know after he was born that they were setting up an RESP for him. A few of my family members, myself included, have been giving them money as of gifts (or as part of a gift along with a book or small toy). He’s too young to really understand gifts anyway, and he already has too much stuff. The 10-20% government matching is a good return on the money.
We’re letting the parents handle the investing for now because they’ve proven they can handle the money. (I realize that’s not the case in all families!) We’re not particularly flush, so keeping the contributions as part of the gift budget is reasonable and scalable when more little ones come along.
If I don’t have kids (adopted, step, or otherwise), then I plan to follow the strategy that Marsha suggests above. (She explained it better than I can!) It will be a nice “bonus” that no one needs to know about, if I can swing it.
And she’s right — every little bit helps. I was a very frugal student and $25 of “fun money” from a relative meant that I could have dinner out, go see a movie or go a community event. Maybe they weren’t buying my text books or funding my tuition, but it made my university experience richer.
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When my first niece was born 8+ years ago, we went through some similar thinking. We now have 5 nieces and nephews, and have come to a solution that works for us.
Currently, our savings for all the nieces and nephews is in a single online savings account. We have increased our monthly contributions with the birth of each new kid. We prefer to retain maximum control over the funds and simply write checks later when they are needed. At some point we may shift from the online savings account into some broad stock funds, but the balance isn’t huge and we would like to protect it.
A niece and nephew on one side of the family each have a 529 plan in a different state. We make modest contributions to these as part of birthday gifts. Since we don’t get a tax break for these contributions, we prefer to keep the bulk of our savings for them in our own account. Incidentally, our siblings don’t know about our savings for the kids.
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In regards to how to make it “fair” for all current future nieces and nephews….I think it is prudent to make the initial investment on each child exactly the same but then on a year to year basis evaluate how much you can afford to invest per existing child and give that. You can always balance it out at the end if you feel the need.
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First off for any 529 plan I’ve heard about if you set it up you control the assets. If your sibling or in-law sets it up, they control the assets. You can provide money to those accounts and may still get a tax break, but you wouldn’t have direct control, your in-law or sibling would. So unlike a uniform gift to a minor where the child upon turning 18 gains control, you retain total control if you set up the 529. You decide how much comes out, for who, and when. This means you can pay for a year of college for a neice, and if that neice drops out, you can make your nephew the beneficiary and pay for his college instead, he decides two is enough and you can then make another neice a beneficiary if there is still money left over in that account. I don’t believe you can just create a general fund for multiples though, as in you have two nephews in college at the same time they cannot be paid out of the same 529 account. Finally the downside is the money in there needs to be used for educational expenses. You take from the 529 for non-educational needs and you are on the hook for penalties and taxes for interest.
If you want to just provide the seed money, have the parents set up the accounts, provide what you will provide, and wash your hands of it. If you want control, you set up the accounts. If you want more control and some tax breaks, you could explore creation of a trust fund. If you want lots of contol and may want to use the money yourself in an emergency, save in your personal accounts and forgo the tax breaks.
To decide how much per child is a real bump in the road. Fair is relative, and you won’t please everyone no matter what you do even if you divide things “equally” because some will feel their needs are more “equal” than others especially as college nears. You could use your anticipated max tax break of a 529 up to some max per kid, so say the max tax break is $2000 a year in your state and you decide on a $10000 total to put into the fund (then let it ride until they get to college age). Or you could see what it would cost for two years tuition at a state school, project out for when the kid hits college age, and that is your number divided up for 18 years.
Finally, if you’re feeling really generous, some states have tuition plans, where you pay the 4 year tuition for attendance at a state school. That is another option instead of the 529 you can explore.
You are being very generous regardless of the amount. Best of luck with this.
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My suggestion is similar to Marsha, #2 above. You can set up a 529 in your own name now, and receive the tax breaks for contributions over the next 18 years or so (assuming it’s in your state). Your parents can do the same thing for themselves. By the time people are needing to tap that money, probably all the nieces and nephews will have been born, and you can roughly divide the money up equally. The only question I have is in transferring money to other beneficiaries: can one transfer one-sixth of the money to another beneficiary, then 2 years later transfer one-fifth of the remainder to another one? Or does the whole amount have to be transferred? I guess you could still remain in control of the 529, verbally anyway.
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“The only question I have is in transferring money to other beneficiaries: can one transfer one-sixth of the money to another beneficiary, then 2 years later transfer one-fifth of the remainder to another one?”
Yes, you can in a 529 account. The beneficiary information in the account has to be changed to match the intended recipient.
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Great questions and you are ahead of the game in considering these questions. My in-laws (my children’s grandparents) made a few of these mistakes. Initially they decided that one of their retirement checks would go to the grandchildren’s college funds each month. But the # of grandchildren went from 1 – 6 over the course of the years, so the oldest have much more money saved than the youngest. We have 2 of those kids and there is a big difference.
They also put them in regular minor savings accounts, meaning that the funds “belong” to the children as soon as they are 18 (or 21, depends on the state) and there is no requirement that they be spent on college. So technically, we can’t redirect the funds, even though they are lopsided, to balance out the savings between the two kids.
Now we’re managing the situation, but I’ve already decided that if/when I have grandchildren, and if/when I can afford to help them save for college, the funds will be kept in a manner that I can control them and then disperse at the appropriate time.
We even made some changes in how we’re approaching our own kids’ college payment so that if the funds are NOT needed (or valued) we have more control.
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I set up a 529 plan for my nephew and niece, I have full control over the 529 plans and my brother (Dad to the kids takes over if I die). I contributed a certain amount (which changed from year to year depending on my own budget and needs) each quarter to the plans, automatically and same for each, and I contribute at birthday times, Christmas and graduation. I always contribute the same amount for each but I only have one niece and one nephew. My nephew is now in college and he has not requested to tap this money yet and I’m still contributing. My brother and I talked about it briefly this summer and they decided he didn’t need it yet.
I do something similar for my god-daughter and her sister, 529 plan for each and I contribute same amount for each at birthdays and holidays. I do not have set automatic contributions for them.
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Well I htink that’s awful nice of you to think about contributing to your nephew/nieces’ educations. Sometimes that kind of stuff gets confusing to me, and so I think, why do you have to figure it all out anyway? It’s your brother/sisters’ kid right? So it seems like it’s their arena to figure out college education and all that. My suggestion? Write a check for however much you want, whenever you want, to your bro/sis and tell them that this is for Little Bobby’s college fund. Let your bro/sis handle the details of it the way that they want to.
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My sister and brother-in-law set up college accounts for their kids, so I send money directly to the accounts.
If someone isn’t comfortable with setting up an account themselves, or if the parents are a little weird about it (it happens), they could buy savings bonds for the kids. Not as profitable, but they will be able to cash them in and make some money, and it’s a very safe investment.
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I second the savings bond idea. There are some tax advantages and even more tax advantages if you use it for education. Some 529 plans have the same problem with high fees that mutual funds can have.
I think that it is very generous and as others have said any amount would surely be appreciated.
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You don’t have to use your own state’s 529 plan. If your state’s plan has high fees, especially if you don’t get any state income tax deduction, then you can pick a better state’s plan. Utah is popular; it’s run by Vanguard and has (last I heard) the lowest fees in the nation.
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I write this from the standpoint of being the recipient of such generous gifts from my grandparents and from the perspective of a parent to a 20 month old and starting to save for my daughter’s college education.
My brother and I were extremely blessed to have grandparents who wanted to provide us with a life more well off than their own. Including both of us, they had two other grandchildren in which they gifted the same way, enabling them to control how much each grandchild received. As some stated before, their method was not the most aggressive avenue, however they provided each of us with US savings bonds whenever they deemed appropriate (birthdays, graduations, whenever they had extra money to give). By providing us the gifts in this manner both my brother and I have been able to use them not only towards college, but also after we graduated the money left over has been able to be used without a tax penalty (when compared to a 529) for things such as helping pay for a first car, a wedding and a down payment on our first homes. (Like I said, we have been extremely blessed that their generosity has provided us with so much)
Even so, now that I am saving for my daughter we actually have chosen a 529 plan. I see the positives and negatives with the 529, so to that end my husband and I have decided that we will contribute only enough into her (any any other sibling’s 529) to cover most of their college expenses. If we are lucky enough to have more to give them, we will be setting up a stand alone account in which we have control to later be given to them once they turn 30.
No matter what way you chose to set money aside for them, speaking from first hand experience I can tell you they will be forever grateful that you were so generous.
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Just agreeing with most of the above — 529s grow tax-free (unlike savings accounts) and money can be switched from the named beneficiary to another.
Maybe put the majority of the money into a 529 (or as someone noted, pick an opening amount per kid and then adjust contributions to all accordingly) and save some as a planned college money account but that would be accessible to you if needed or wanted for other purposes. If you don’t use it, you can always roll it into the 529s.
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Forgot to comment on the mixing funds with grandparents. If that is something you want to consider, I would recommend using a trust. Then the terms of the trust are set up at the outset, to include control, changes to, and distribution, and you can argue about those points up front before money is actually put into the trust. If they just want to make a big pot of money in some bank account, I wouldn’t do it because they are very likely to want to retain control of that account and have their names on it.
Additionally, if the money isn’t shielded in a trust (e.g. 529s are basically a specific kind of trust), and something serious happens to them or to you, that money is reachable. It is potentially more reachable against them because even if they currently appear to have a lot of assets those could get wiped out with serious medical conditions in the next twenty years (if they’re sixty now, they’ll be eighty when the neices and nephews are entering and attending college), then that’s even more of a concern. Medicaid is already looking back 5 years in many states and trying to up that to 7 in some others. I know a family in NY state where they are facing a nursing home lawsuit because of money provided to a grandchild for college out of a grandparent’s personal account being within the lookback period. Hence I strongly recommend either not doing it with them or setting up a specific type of trust.
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I have a question along these same lines I’m hoping to get advice on. My niece has just gotten her GED after a rough time and wants to attend college. Her parents are not willing or able to help her. She’s working hard. How do I approach her to help pay for her school? I don’t really want her parents involved. I’m also scared to pay for a year or two and she drops out, but I understand that is a possibility. What do you guys think? I was thinking maybe a matching, where she saves and I match her dollar for dollar. Or do I do a reimbursement, where she attends, and then I pay her back? Should I even mess with 529, seeing as how its pretty late in the game?
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I think it’s great you want to help (though I understand that the parents might be unwilling, unable, or gun-shy at this point). If your niece has the ability to pay for it, then your idea of paying her back after the successful completion of her semester is a good one.
If she doesn’t have the means to pay at all, maybe suggest she take a few classes (as opposed to full time) and offer to pay for those so both of you can see how it goes. In this scenario, I’d also suggest any funds go directly to the college.
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Good questions. You may have done this already but I think the first thing to do would be to just sit down and have a long conversation with her – tell her you are proud of her for getting her GED, you really want to hear about her plans for the future, and that you want to be there for her to bounce ideas off of or ask for advice.
The nonprofit maxim that “if you want money, ask for advice; if you want advice, ask for money” holds here – talking about advice will help you figure out how practical she is, what she’s willing to do to get through college, and how much she could work with you before money is actually on the table. And THEN you can think about what to do.
Reimbursement would maybe be a lot of trouble for her if she’d have to take out student loans just to pay them back at the end of the semester, but some kind of matching sounds like a great idea for motivating savings before and during college. You could also set up an increasing reward system based on performance – e.g. offer to pay for one course or some portion of it her first semester, but two if she gets through that, rather than a whole year at once. And make it based on accumulating credits, not letter grades – that’s what’s the most important thing, it’s not high school anymore.
Good luck! So nice of you to want to help!
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Can she go to a community college first and get some credits under her belt? The expense would be less to start and you could gauge her ability and commitment without a lot of debt on either of you. She could even get her two year degree there part time before jumping into a four year school full time.
Can you provide non-monatary assistance like letting her live with you if you are near a school she could get into? I would not offer full tuition, but help provided she gets the grades and passes the classes. So the matching is a good idea to me. She should avoid loans if possible or take the minimum necessary. I wouldn’t bother with the 529 if she’s ready to go now and you are unclear of her longer commitment. It might net you a state tax break, but the real use is untaxed earnings that you won’t be getting much of if anything, you can run the numbers to see if your state tax break is worth it to you.
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This is so nice! On one side of my family, there were no other children, so our extended family wanted to help us out with college, and my parents and I really appreciated that. For better or for worse, going to a good college helped me to do work that I love after graduating, and avoiding student loans allow me to live decently on a pretty small salary while I’m in grad school to advance in that career, so it makes a huge difference.
This is a bit old-fashioned, but my grandfather & my mom’s aunts all tended to give us a savings bond and some little present (like candy) for every Christmas and birthday. They weren’t enough to cover all or even most of college tuition, but as others are saying, every little bit helps, and covering it all isn’t your responsibiity as a generous relative anyway.
Yearly and equal gifts for each child are totally appropriate, and they are GIFTS, so it’s ok if they have to decrease in the future due to changes in your financial situation or the birth of more children. It’s also ok if you can’t contribute the same amount as the grandparents – who compares gifts? Would they criticize you if the toys you got your nieces and nephews were cheaper than the ones they bought for Christmas? Setting up an account together doesn’t imply a commitment to matching gifts, but if you’re nervous that’s what your relatives think, you can just tell them that your financial situations are different and may diverge further with more kids, so your families will have to decide on contributions separately.
Basically, my point is to work from what you can give at any given point, not from how much you think college will cost in 18 years (unpreditable! terrifying!) and what percentage of that you “should” pay.
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The way that the 529 works, is there is an account owner (the person who sets up the account), and a beneficiary (the person who is the future student). The owner decides how the money is invested and disbursed. From what I understand, the 529 money can be transferred penalty-free to another 529 in the same state. And there are the contributers to the account. Anyone can contribute to the account, but they don’t decide how the money is invested or disbursed. A child can be beneficiary to more than 1 account. The money in a 529 affects financial aid minimally (as of now). So, what I would do, is decide how much you want to contribute each money toward all the nieces, nephews education. Open a 529 for the first one. Contribute that amount each month. More nephews and nieces enter the picture. Simplest option, simply keep entering money in the same 529. About 5? years before they begin entering college, create seperate 529′s for each student and split evenly. You don’t even have to let the parents know what you are doing. Or, simply explain although child #1 is listed as beneficiary, the amount in that 529 is going to be split amoung all potential neices and nephews.
An option which gives you the most control, is to open a Roth IRA. Once the students are in school, “gift” amounts of money to the student(s). Just keep in mind whatever you gift for that year, the next year that is considered income for the student and reduces their financial aid. This is not an issue if you wait to gift after they complete college.
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I’m in exactly the same position as the author. I have been sending contributions directly to the 529 managed by my brother with my niece as beneficiary. After reading the comments, I now think I should “own” my own 529 with my niece as beneficiary, to retain greater control in case of many more nieces/nephews and to take advantage of my state’s tax credits. See also the great review (podcast) at http://www.money-guy.com/2012/10/best-529-college-savings-plans/ and http://news.morningstar.com/articlenet/article.aspx?id=570349
Learning about better financial management is great. Thanks, GRS.
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I didn’t look through the previous ones, but what my grandparents did for us four grandkids was set up a trust fund managed by an accountant (I think). My mom was the trustee for my brother and I and (due to some familial awkwardness) my great-aunt the trustee for my two cousins. The trustee makes the decision on distributions. There was some kind of subdivision within the trust so we each got an equal share.
This is by no means a fully fleshed out thought or opinion, just a summary of what worked for my family. (Worked aside from the bitterness of my brother and I, who used up our share for its intended purpose, and then our cousins’ dad paid for their college, the lucky so-and-so’s, so they get their money when they’re 35. At least there’s that.)
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I recall reading an article about parents helping their child retire well. Deposit 50$ a month from birth to age 18.. they used and S & P 500 index I recall. Stop at 18. Around the age of 45 to 55 the conservative amout was $500,000 or so. The magic of compound interest. I would let the richer folks fund the education.
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That would require more than 8% returns over 55 years. Who knows if the next 55 years is going to look anything like the last 55 years. Note: the last decade hasn’t been great — even for S&P 500 index funds.
I don’t find 8%+ returns over 55 years as being particularly “conservative,” even with historical averages being at or above that. Use the same facts but with a more conservative 3% return and you get around 45K at age 55.
All that being said, I literally do this exact same practice for myself, my spouse, and my children. Every month I put $50 in S&P 500 index fund for each person, everything auto-reinvest. So far so good.
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In my ever so humble opinion, I think your concern about “losing control” of money in a 529 is probably misplaced. Mathematically, if you think there’s a 90% or greater chance that the child will go to and finish college, then that balances out the 10% penalty you would pay if you guess wrong.
Also, to resolve the “sticky” third question: share all your research, but have them make their own decisions and open their own account(s). There’s little reason to “combine forces” on this, so why get into such sticky issues? You can combine dollars later.
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If you read the article it is very much a concern for her to have control over the money, in regards with decisions about investments. Frankly if a set of parents or grandparents were financially savvy enough to open a 529 for their child I would be happy that that the work had been taken care of and contribute to the same place. But that is not the case for her. Better for her to open up her own 529 and feel comfortable about it (even if it means multiple pots of money) than her to have reservations and not contribute.
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I’m a god parent to a wonderful 1 yr old. Because I’m not sure if he will go to college, his father and I set up and Ingdirect account (soon to be Capital 360). It is a kids account in which he is the caustodian.
I transfer $40 over each month, and $100 on Xmas and birthday. I have full faith in my friends ability to save the money for my godson’s education or if he chooses to use it for something else when he’s 18 (travel the world, trade school etc.) then so be it. We opted not to do a 529 to allow flexibility in the great unknown of the future.
Depending on if I have kids or if others little ones come into my life, I will increase my contributions in the future.
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We have some money saved in a 529 and some money saved in a Roth IRA. Our oldest is a sophomore in high school now and so we’ve been looking at college costs. What we’ve found is that unless there is a horrible turn for the worse in our finances, it’s unlikely we’ll qualify for any aid.
We are telling our kids that we will pay up to what it costs to attend Penn State, which of course is a well ranked school. That means they can either go there or they’ll need to look at schools which perhaps aren’t as highly ranked, but will give them academic merit aid. What we don’t want is to have them (or us) take out loans. We don’t see the return on investment on some of the more highly ranked schools, like Princeton or University of Pennsylvania. (Not that all of our kids would get into those elite schools, but some of them, in particular our oldest, would have a shot).
Only one of our kids has any possibility of qualifying for an athletic scholarship, but he’s only 7 right now so I haven’t looked into that angle yet.
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Here’s my take on it:
You can setup a 529 and retain control. The money is still owned by you. Its not the property of the child. You control when and if they get the money or not.
I’d setup individual 529′s and not combine them with your relatives. The 529 is owned by one person and it could get messy if people disagree or worst case if someone passes. Setting up more than one 529 should not be hard. Just fill out a form and mail it in with a check. (or do it online) Easy.
I would save as much as you can in bulk and then spread the amount out over however many kids there are. I would not promise or commit to giving each kid a certain amount, but just indicate if you want that you plan to help with costs. I would not give them a ‘full ride’ even if you can afford it but thats my opinion. I think people should have some stake in the cost of their own education. They can earn scholarships, work or take loans.
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I have set up 529s for my two nieces and one nephew. I decided on a set amount that I want each one to have and have set an automatic contribution each month that will get them that much by the time they graduate high school. I don’t count on the account making any money so when they take the money out they will probably have more than the amount I set. I am thinking of changing my nephew’s to a savings account because it is looking less and less that he will be able to attend college due to his autism.
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Lynn, don’t rule your nephew out just yet. I have personally worked with quite a few students with Autism who have gone on to be successful in college.
There are also programs developed specifically for students on the Autism spectrum.
Please be sure to encourage him to continue his education beyond high school just as much as you encourage your nieces!
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For the person whose niece just got her GED (I’m in the same boat and my niece lives with me), I’d say make her plan for it. Honestly yes it is a lot of work to take out a loan only to have a family member pay it off, but the learning experience is almost as valuable as what she will learn in college. If I ever have kids (am not helping my niece other than a place to live, dog sitter, and coach), I will not tell the child that I intend to pay. I want them to learn to get what you pay for. She already didn’t stick it out through high school. There are various reasons why I’m sure but there is a reason that the military counts a GED as a drop out. The likelihood of them finishing their first tour is much lower. Coach and maybe help with books, but make her show you that she will stick with school before you offer monetary support. I do however think that paying a chunk of student loans off after graduation would be a fantastic gift. I have a mortgage full of student loans and once I had the bills and degrees, I would have appreciated such a gift substantially more.
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This is a great topic and I can only share our family’s experience with 529 plans. They are market-based and my children lost about half of their investment during the economic downturn. We had two separate plans for each child, Hartford and American Fund. They are university students now and both have had to take out student loans, in order to get their degrees, after the 529 funds were depleted.
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Good question. I think it would be best to ask the parents how they plan to save for college and let them know that you are willing to contribute. Some 529 plans require a relatively large initial deposit of several hundred to more than a thousand dollars (e.g., $3000 initial investment for Nevada’s well-rated Vanguard 529), which isn’t easy for many parents of young children. A little “nudge” can really help. My parents jump-started their grandchildren’s 529 plans with financial gifts at baptism. They have made additional contributions directly to the account through a “gift” link on the website.
My other recommendation is to make contributions on an annual rather than monthly basis. This would probably exclude setting up your own 529 plan — ours requires a minimal monthly deposit of $30 — but it does give you more flexibility to reassess all your goals and adjust for increases in the number of nieces and nephews and any changes in your own situation. Thirty dollars per month per kid may be manageable now, but add a few more kids or a decrease in income, and you’re looking at a significant line item in your budget.
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I set up a 529 account for each of my nieces and nephew. I own the accounts, which gives then an advantage when it comes to the fafsa. An aunt’s savings don’t count! I contribute $100 to the account whenever a gift giving occasion comes up. Right now that’s birthdays and Christmas, but I’ll deposit money for graduations or other occasions as they come up. I may do some sort of matching when they get older. If they don’t use the money, I’ll transfer the account to their names and they can save it for their own children or give it to a sibling or whatever.
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