How do you set up a 529 plan for someone else's baby?
March 17, 2008 8:08 AM Subscribe
Does anyone have any first-hand experience setting up a 529 plan for a member of the extended family? I have pretty good ideas about where to look for information about which state's plan would be best (although any suggestions about great plans in specific states are welcome), but I'm at a bit of a loss with the mechanics of doing for someone else's kid. The soon-to-be niece or nephew of iminurmefi thanks you!
My sibling is expecting his first kid in April, and I really want to open a 529 plan for the little one. He and his wife have a ton of stuff going on right now, and I know they'd appreciate someone else doing all the legwork on finding the best plan and setting it up. However, I'm not sure of the mechanics of this once I've found the plan.
(1) I'm assuming it's best to put the plan in my sibling and his wife's name, rather than my name (what kind of present is that?) or in the still-unnamed kid's name (because this will be less preferable from a financial-aid standpoint in 18 years). I'm envisioning a plan that I seed with the initial deposit, then other family members and of course my sibling can keep contributing to. Am I missing anything in my logic here?
(2) Has anyone actually done this? What were the mechanics of it all? I'm suspecting that I'll actually have to pull all the paperwork together, fill out as much as I can, then send it to him to sign, because I can't imagine I would be allowed to actually set up a financial account in someone else's name without their signature. But... then I just include the check for the first deposit in the stuff he has to send in? I'm struggling to find a cool way to do this that doesn't just seem like dumping a bunch of paperwork in his lap. Any tips on presentation?
(3) In your experience, once a plan is set up, how easy is it to continue contributing money? Will I (and any other family members who want to add a bit on birthdays and other occasions) have to send checks to my sibling and his wife to deposit, or is it pretty easy to send it directly to the plan without having to involve my brother?
Both links to good (trustworthy) resources about 529 plans and personal experiences with setting something like this up for someone else are much appreciated.
My sibling is expecting his first kid in April, and I really want to open a 529 plan for the little one. He and his wife have a ton of stuff going on right now, and I know they'd appreciate someone else doing all the legwork on finding the best plan and setting it up. However, I'm not sure of the mechanics of this once I've found the plan.
(1) I'm assuming it's best to put the plan in my sibling and his wife's name, rather than my name (what kind of present is that?) or in the still-unnamed kid's name (because this will be less preferable from a financial-aid standpoint in 18 years). I'm envisioning a plan that I seed with the initial deposit, then other family members and of course my sibling can keep contributing to. Am I missing anything in my logic here?
(2) Has anyone actually done this? What were the mechanics of it all? I'm suspecting that I'll actually have to pull all the paperwork together, fill out as much as I can, then send it to him to sign, because I can't imagine I would be allowed to actually set up a financial account in someone else's name without their signature. But... then I just include the check for the first deposit in the stuff he has to send in? I'm struggling to find a cool way to do this that doesn't just seem like dumping a bunch of paperwork in his lap. Any tips on presentation?
(3) In your experience, once a plan is set up, how easy is it to continue contributing money? Will I (and any other family members who want to add a bit on birthdays and other occasions) have to send checks to my sibling and his wife to deposit, or is it pretty easy to send it directly to the plan without having to involve my brother?
Both links to good (trustworthy) resources about 529 plans and personal experiences with setting something like this up for someone else are much appreciated.
The advicepig household has a few 529s for relatives and unrelated kids.
All the accounts were setup by us and in our names. When you set one up, you choose a beneficiary. This is the kid you intend to spend it. You'll need their social security number. Nothing else is required. We did all of ours online through the Minnesota plan at mnsaves.org.
We have these accounts automatically draw from our checking account, but you can also mail in payments. We've had a number of other relatives and friends send in checks to the accounts and it's easy and doesn't need to involve any effort on our part or the parent's part.
posted by advicepig at 9:16 AM on March 17, 2008
All the accounts were setup by us and in our names. When you set one up, you choose a beneficiary. This is the kid you intend to spend it. You'll need their social security number. Nothing else is required. We did all of ours online through the Minnesota plan at mnsaves.org.
We have these accounts automatically draw from our checking account, but you can also mail in payments. We've had a number of other relatives and friends send in checks to the accounts and it's easy and doesn't need to involve any effort on our part or the parent's part.
posted by advicepig at 9:16 AM on March 17, 2008
p.s. shortly after my niece was born I about 23 years ago I set up a 20th Century Gift Fund for her that she would only be able to access at age 25. For years they kept sending me statements until I asked them to copy her on the statements as well, then they stopped sending them to me (they couldn't seem to grasp that we lived in different parts of the country). I hope she has been getting statements from them - I really should ask. My niece never went to college and now works at Walmart. She voted for Bush. You never really know who you are giving money until years later.
posted by thomas144 at 9:17 AM on March 17, 2008
posted by thomas144 at 9:17 AM on March 17, 2008
I'm trying to do something similar and concluded that the best thing is to do all the research and have the parents actually sign up (with a gift from me), so there are no custodial issues. I looked into all the plans in this article, which may be a good starting point for you as well.
posted by mingshan at 10:00 AM on March 17, 2008
posted by mingshan at 10:00 AM on March 17, 2008
Advicepig is right, anyone can set one up to be paid to another person--all you need is the birth date and SSN of the beneficiary.
If you're researching funds, Utah's plan is widely cited as one of the best--mainly due to well performing fund options and the very low administrative fees. That said, a major factor to consider is tax benefits--if your state offers tax credit for contributions to the in-state plan that can make the difference.
Money magazine did a nice write up on selecting a 529 in July of '07--you can access their fund comparisons and decision making guide here.
posted by DIYer at 10:07 AM on March 17, 2008
If you're researching funds, Utah's plan is widely cited as one of the best--mainly due to well performing fund options and the very low administrative fees. That said, a major factor to consider is tax benefits--if your state offers tax credit for contributions to the in-state plan that can make the difference.
Money magazine did a nice write up on selecting a 529 in July of '07--you can access their fund comparisons and decision making guide here.
posted by DIYer at 10:07 AM on March 17, 2008
I did this recently for my nephew.
I went with the Iowa 529 Plan because of this great blog post about its benefits.
I was able to set it up with only his social security number and birth date.
I remain on the plan as the administrator because my sister isn't very tech savvy, but I made up .PDFs with all the info already entered in the fields to allow others to donate rather than give him toys which he would grow out of in a week/month/year.
posted by sharkfu at 11:04 AM on March 17, 2008
I went with the Iowa 529 Plan because of this great blog post about its benefits.
I was able to set it up with only his social security number and birth date.
I remain on the plan as the administrator because my sister isn't very tech savvy, but I made up .PDFs with all the info already entered in the fields to allow others to donate rather than give him toys which he would grow out of in a week/month/year.
posted by sharkfu at 11:04 AM on March 17, 2008
If you set up the account as the account holder, you can designate an alternate beneficiary in the event that the kid somehow doesn't end up going to college. This has become more of a factor for us as more and more nieces and nephews have appeared. One would imagine that at least one of them will not go to college. If you choose your state's plan (we are lucky in that Virginia's plan is a good one and offers a tax break), you'll have to set it up in your name to get the tax advantage.
The advantages in keeping the account in your name are:
1) The assets in the plan will not be counted as part of the parent's resources and will not reduce the financial aid available to your niece or nephew.
2) You can control premature access to the account and ensure that it is used for its intended purpose (and avoid a tax hit, if you choose a tax-free option). Unfortunately, not all of our siblings are equally reliable.
In our state's plan, when someone else in the family contributes, I get the tax break. I've been kicking it back to them manually.
posted by Lame_username at 11:36 AM on March 17, 2008
The advantages in keeping the account in your name are:
1) The assets in the plan will not be counted as part of the parent's resources and will not reduce the financial aid available to your niece or nephew.
2) You can control premature access to the account and ensure that it is used for its intended purpose (and avoid a tax hit, if you choose a tax-free option). Unfortunately, not all of our siblings are equally reliable.
In our state's plan, when someone else in the family contributes, I get the tax break. I've been kicking it back to them manually.
posted by Lame_username at 11:36 AM on March 17, 2008
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I don't think you can actually set up the account in your sibling's or his wife's name. You could give them money and ask them to set up the account. I think frankly you're making too big a deal about it - it just isn't that hard to set up a 529 plan.
The only significance is that the person who sets up the account controls the distribution of the money. If you want to set up a 529 with your soon-to-be-born neice or nephew as the beneficiary, that would be a nice thing to do. Actually I recommend you just set up something through UPromise, and then buy stuff through upromise to get a rebate invested into the account. That would be a nice thing to do for your brother, in my opinion.
Or you could just give the child a savings bond.
posted by thomas144 at 9:13 AM on March 17, 2008