College Savings for kids that aren't yours...

ea1776 · #1 (**permalink**) 03-24-2008, 04:21 PM

I wanted to start a college fund for my sister's kids.

Can I do this with any tax benefits? How?

Thanks,
ea1776

dardhel · #2 (**permalink**) 03-24-2008, 06:49 PM

You can open a 529 in your state under your name with them as the beneficiary. The only downside is if they decide not to go to college.

If one decides not to go to college you can move all the money to the other or to another family member. However, if you decide you need the money you pay tax on the gains and a 10% penalty. Otherwise the money grows tax free if used for a qualified education expense.

Also, it depends on your state on whether you would even get a tax benefit at all..

Slug · #3 (**permalink**) 03-25-2008, 07:18 AM

Additionally, you can always name yourself as the beneficiary for the time being. Once those kids reach college age, you can transfer the beneficiary status to them. There's no tax consequences to you holding the 529 in your name.

ea1776 · #4 (**permalink**) 03-25-2008, 11:53 AM

Ok, great.

So if I understand this correctly, you can have one 529 that can be used by multiple people?

Would it ever make sense for me to open multiple 529's, or can there be multiple simultaneous beneficiaries.

Thanks again,
ea1776

Slug · #5 (**permalink**) 03-25-2008, 12:46 PM

I think the issue would be the simultaneous beneficiaries. Plus, if I have 2 kids and one goes college and grad school while the other just goes to college, I'd rather the one who just goes to college be able to pass it along to his kids. So, once they're in college, they own it. If I have another kid, I'll open another 529.

loulou · #6 (**permalink**) 03-29-2008, 09:32 PM

Quote:

Originally Posted by ea1776

Ok, great.

So if I understand this correctly, you can have one 529 that can be used by multiple people?

Would it ever make sense for me to open multiple 529's, or can there be multiple simultaneous beneficiaries.

Thanks again,
ea1776

One 529 can be used by multiple people, but not at the same time. So depending on the difference in ages of your nieces/nephews, you might only need one. Also, I wanted to mention that not all states allow you to deduct 529 contributions, so make sure your state does before you open one.