529 plan
Our first grandchild is due in February 2022! We have already set aside $25,000 to open a 529 plan for her. We live in Indiana and so does her parents. Should we open a 529 plan with the full amount or divide it over a few years? I wanted to ask your opinion before I called our CPA. Thanks!
Terry Says
You are each entitled to put $15,000 per year into a 529 plan, (and next year the allowable gift rises to $16,000) so this very generous gift is not out of bounds. No need to ask your CPA about that.
I think you are talking about “market timing’ when asking for advice about “when” to invest. And I understand that. Once inside the account, you will probably go for the age-based investment option — which is very aggressive for young children, assuming they will have nearly 20 years before the money is used. So you could decide to open the account with $5,000 –and then add $5,000 every three months over the next year. That solves the market timing problem.
OR you could decide to put half of the initial $25,000 contribution into the aggressive age-based program, and half into the more conservative option typically used when a child is nearing college age. That would be another way to deal with the “is the market too high” problem!
One more thing. If you trust the child’s parents, it would be better down the road when the money is used for them to be the plan custodians, even though you make the initial contribution and presumably more contributions in the future. Under current rules, a parental custodianship will have a smaller impact on financial aid when the money is withdrawn.
