G

As a gift to my Godson, I was going to set up a 529 plan in the parent's name. After doing some research here, it seems like that might not be the best option for him as it limits the scope of what the money can be used for (obviously).

With that said, am I better setting up a trust for him?

If not, have any of y'all heard about the Smart529 Select plan? Any comments?

Anachostic

If the use is just for schooling, 529 is probably the best because it grows tax-free and is spent tax-free. I'm not sure what other investments have that additional benefit.

http://clarkhoward.com/liveweb/shown.../7/76/215/381/

doopstr

Unless you are planning to give him a rather large sum of money (5 figures +) I suggest you just give his parents a check and let them decide what to do with it.

G

That's the thing-he's currently 6 months old, and by all means, I hope he does go to college. However, is it worth the gamble?

GIBSON6594

Just write a check to your Godson and give it to his parents.

G

It will be a large gift. Plus, I plan on making monthly investments for the foreseeable future.

GIBSON6594

if you don't want to pay taxes, you generally have to limit the usage of the money. How about an IRA?

Scrib

I am not sure if you can set up a 529 in someone else's name. In other words, I think you'd have to gift the money and ask the parents to set it up.

There are other options, like a custodial account, but it's going to be taxable.

Honestly, I'd go the 529 route. There are some significant benefits, I won't rehash as the following does a good job.

http://www.fool.com/college/college04.htm

But this paragraph is a good synopsis...

The contribution limits to 529 plans are very high -- more than $200,000 in most cases. Most of these plans have no age or income limitations, so higher-bracket taxpayers can participate. Unlike a custodial account (e.g., Coverdell, UGMA, UTMA), the assets in a 529 college savings plan remain in your control. With only a few exceptions, your kids can't grab the money and run off to Europe when they reach the age of majority. You decide when distributions are made, and what the funds will be used for.

And if he doesn't go to college, you can always transfer the money to someone else. Heck, it could be transfered to your godson's kid...

Scrib

Uh, that would require his godson to have income, which... at 6 months old unless he's sellin' the poop in his diapers for cash...

Scrib

Keep in mind that there are potential gift tax implications if you were to cut a check to the parents.

As a note on 529s and gifting:

http://www.investopedia.com/universi...n/529plan2.asp

Amounts contributed to a designated beneficiary's 529 account is treated as a gift. However, contributions of up to $12,000 can be made for each designated beneficiary without incurring federal gift tax in accordance with the annual exclusion applies to gifts to each done. Alternatively; an individual may be able to contribute a lump sum that covers five years, giving a total of $60,000 ($120,000 for married couples), providing the individual makes no additional gifts to that designated beneficiary for the five-year period.

Scrib

oh and you're a good man for doing this!

G

Scrib-thanks for all your help with this-it is greatly appreciated!

I have been wrestling with who should be the account owner-for, as you said, I can't set up anything for the parents in their name. Plus, for the foreseeable future, I will likely be the only member contributing to the fund as both the parents and grand-parents are not in a position to invest. With that said, as long as the fund is set up, I can make a contribution even if I am not the account owner.

What do y'all think? Am I being too controlling in being the account owner? Should I just help the parents set the account up in their name and then fund?

NSXNEXT

iTrader: (2)

If you don't already, hire a financial planner. There are many options in the way of trusts, 529s, etc.

As mentioned, you cannot put it soley in the child's name or in the parent's name.

You set it up as the administrator, kid is the beneficiary.
I would imagine doing it this way will not affect the parent's ability to receive financial aide.

Scrib

I would simply look at controlling it as having the best interest of the fund(s) to perform well; best bang for your buck. If you gift it, you're giving the responsibility over to someone else to ensure they're taking care of the money.

Considering as how this is for your godson, you obviously want everything to go well for him. Why not keep the ownership of the monies with you to ensure that it is given the best opportunity possible?

JediMindTricks

i see nothing wrong with you being the owner of the plan. if the kid decides not to use it for college, you can always change the bene, can't you?

year back, i opened a 529 account for myself (owner/bene) in case i ever decide to go back to school. or if i don't, i can change it whenever i have a kid.