529 Ownership
Have always enjoyed “Savages Truth” on financial stuff! My quickie question involves 529 ownership. In today’s Trib article (11-21-21) you mentioned a bit about custodian ownership, but it was unclear to me. I’m the grandparent of a 2 year old. I want to start a 529, and I’ve done research on Illinois BrightStart program. Looks good. Question – What’s better for the custodian? …me opening the 529 in my name, or me opening the 529 in my son’s name (the dad)? I realize there are some financial aid impacts, but what’s better overall?
Thanks Terry!
Terry Says
The financial aid difference — way down the road — is that under current rules, the money in a parental 529 plan weighs less than assets held in a child’s name. If the plan is in the grandparents’ name, then when the money is withdrawn it is considered as a student asset for aid the following year. The solution to that is to not withdraw from a grandparent plan until the last year of college, when presumably (and not considering grad school) the student will not be applying for aid the next year!!
But a better, easier solution is to name the parent as the custodian, presuming you trust them not to ever raid the plan, pay the penalty and taxes, and take the money and run. (Don’t laugh — that has happened!)
