Can I open a 529 plan and put it in my name if I don't have a kid yet?

[ScrimpAndSave]

...with the idea of changing it into their name if/when I do have a child.

And if I do not have a child, can I change it into a niece's or nephews name?

TIA!

[creditcardfree]

Yes, you can! You put it in your name initially and change the beneficiary when appropriate.

[kork13]

Thanks for asking this. I've thought about the same thing off and on, not really knowing if it's a good idea or not. I suppose whether you (by that, I mean I/we) have kids or not, there's still plenty of options for what we can do with the 529 money. Whether an advanced degree for myself, or college money for a brother, nephew/niece, and so on.... I think once I finish off my EF in a few months, I may look into starting a 529....

[jIM_Ohio]

Yes you can...
why would you?
seriously...

if you think you want to fund a kids education, particularly your own, and they don't exist yet, I could suggest LOTS of other ideas as to how to invest money without tying money up in a 529 plan.

A 529 offers few immediate rewards with a restricted long term benefit (it can only be used for education). If you do not follow the restrictions, you pay a penalty. The only immediate gain in a possible state tax deduction. In Ohio this is a $50 refund for every $1000 contributed for me. Not worth the benefit to get the added restrictions IMO.

Here are some suggestions for what to do with money before opening a 529 plan:

1) max out current retirement options (Roth IRA, 401k, 403b etc...)
2) pay down mortgage
3) invest in a taxable account (build EF up to 24 months before considering a 529 for a kid which does not exist yet).
4) go to bar, and meet the person which will help create the kid (that is a heck of a bar bill LOL).

[kork13]

Yes you can...
why would you?
seriously...

haha -- Compelling points.

My immediate thoughts are that it would be a good way to set aside money for myself to get my master's degree. The savings would grow during the time between now and whenever I start my degree (I don't know when that will be, just that it will happen), and the gains would be tax-free for me at that point. At least for myself, the 'future kids' thing is more a side thought.

[jIM_Ohio]

haha -- Compelling points.

My immediate thoughts are that it would be a good way to set aside money for myself to get my master's degree. The savings would grow during the time between now and whenever I start my degree (I don't know when that will be, just that it will happen), and the gains would be tax-free for me at that point. At least for myself, the 'future kids' thing is more a side thought.

Devils advocate- how much would the 529 SAVE you
and how much would it COST you?

529- lets say you put in $10k per year for 2-3 years to cover "all" expenses... consider I do not know what your graduate program costs, and how much you can afford to set aside... 10k is a rough number which makes math easy for this example...

I researched this on the web

If your income range is $8,701 and over, your tax rate on every dollar of income earned is 5.5%.

Hopefully that sounds right to you... so 10k in 529 saves you $550 in taxes that year. State taxes to be specific.

If money is in 529, would the money earn 5%... probably not... or it would be close- I assume money would be invested in bonds or cash because post above made it sound like a 3-5 year investment. If you subject the 10k to market risk, you get what you deserve if market slides in short term IMO.

The alternative would be this:
set aside the 10k in a taxable account
if it earns 3% interest, you would pay $550 income tax on the 10k earned income, then $16.50 state tax on the $300 interest the cash earned.

Then when you go to grad school, look up the lifetime learning credit on the IRS web site. A short FAQ on the credit

Q.9. What is the maximum Lifetime Learning Credit a taxpayer may claim?
A.9. The credit is equal to 20 percent of the taxpayer's out-of-pocket expenses for qualified tuition and related expenses of all eligible family members, up to a maximum of $5,000 in expenses annually through 2002. Thus, the maximum Lifetime Learning Credit a taxpayer may claim through 2002 is $1,000. After 2002, the credit is equal to 20 percent of the taxpayer's out-of-pocket expenses up to a maximum of $10,000 in expenses. Thus, the maximum Lifetime Learning Credit a taxpayer may claim after 2002 is $2,000. The maximum credit does not change even if the taxpayer is claiming a credit for the expenses of more than one student in the family.

So that same 10k of tuition which cost you $550 in state income taxes and another $16.50 on the interest just got you $2000 back ($2000 is 20% of 10k) on the federal tax return.

For a 529 to give you this benefit, the money would need to be in the account for 18 years for that $16.50 benefit to compound and grow.

If you do not have that time, then focus on the federal tax credits.

Keep in mind most states also have a state education tax credit, but as I never have (and probably never will) file an Oklahoma tax return, I have NO IDEA what state tax credits you can add to the 2k federal tax credit.

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[kork13]

Noted. it was just a thought.... mental exercise, call it. hahaha

[Thrif-t]

It's also recommened to keep the 529 in the parents name with the kids as beneficiaries. Better for financial aid if not in the kids name.

[MonkeyMama]

A 529 plan is generally a high cost/inflexible asset.

The appeal of the 529 is for people with large income and assets, who need the tax shelter. So if your retirement is maxed, and you want to shelter more assets, then I would consider the pros and cons of a 529 plan. In general, it wouldn't make any sense to save for non-children, unless you had "more money than you knew what to do with." (& personally, I'd argue the same if you had children...)

[Slug]

Yes, I did this in order to take full advantage of the Upromise program. My Upromise $ was just sitting in my account doing nothing and this was prior to the time when it became clear you could simply demand a check from them. So I opened one around '02. My son was born in '06. It was a nice jump start to his college savings using money that I really never did anything to get except linking my grocery cards on Upromise.

[Like2Plan]

I am a big fan of 529s, but I agree with Jim and Mickeymama.

You can, but it may not be the best place to tie up your money.

What is the goal for the savings--to save in a tax advantaged account? Or, do you want to use it as a means to transfer your wealth?