Regardless of who owns the account, you get tax-deferred growth, the main benefit of using a 529 plan. Anyone can contribute, the beneficiary can be changed, and the account owner can be changed (if allowed by the plan). There are several advantages to being the account owner as a grandparent. For one:
- You retain control of the assets. How they're invested, when they're distributed, etc. You always have control.
- You can, if needed, revoke the gift and pull the assets back into your estate. For example, if you had a medical emergency and needed the assets, they'd be there for you.
- There may be tax benefits you can only claim as an account owner; check your state.
The opposite is true for most of these when the parent is the owner, meaning the parent will control the assets, they can revoke the assets, etc.
There is also a significant difference between how the two accounts are treated when applying for federal aid. Grandparent accounts are not counted at all in the EFC (Expected Family Contribution) formula until a withdrawal is made. Then the income is counted as student income, which takes 50% of the amount against the EFC. Conversely, assets in a parent 529 plan ARE counted at up to 5.64% for the EFC formula, meaning they receive preferential treatment, but could against the EFC each year. So if you own the account, and financial aid is a consideration, you would want to back-load the withdrawals starting at the earliest in the second half of their sophomore year, so that the assets did not count against the student's financial aid consideration.
I also noticed that you were planning on depositing $28,000, which I'm guessing is to max out the gift limit for the year (assuming you're married filing jointly). Note that 529 plans allow you to "superfund" an account, contributing five-years worth of gifts into a single year. This lets you deposit up to $140,000 in a single year if married filing jointly. There is a special election on IRS Form 709 to allow this.
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.