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#42927 - 03/10/08 09:41 PM Is a 529 the best investment option for a child's money?
KLSMN08 KLSMN08 Registered: 03/10/08 Posts: 2	My 6-year old niece gets ~$1000 a month in social security income. I have several questions about her investment options: 1) If I open a 529 account with her as the beneficiary, can she put her own money into it? 2) Are there any tax penalties for a child putting their own money into a 529 plan? 3) Is social security income treated differently than earned income for this sort of thing? 4) Are there limits to the amount of her own money that she can invest each year? I'm thinking it would be ~$6000. Right now she lives with her grandparents and they are pretty conservative with her money (I-bonds and 12-month CDs are about as extreme as it gets). We live in Minnesota, if that matters. Thanks for your help!
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#42928 - 03/10/08 11:32 PM Re: Is a 529 the best investment option for a child's money? [Re: KLSMN08]
itstoomuch itstoomuch Registered: 01/01/06 Posts: 693	Q 1-4. Why would you ask these questions. Yes(no advantage),No,No,No. And state of residence is immaterial for needs. But the question you should be asking: 1) What are the alternatives? 2) What are the consequences in a 529? 3) What are advantages/disadvantages of a 529? 4) Are there more questions that you need to ask? Edited by itstoomuch (03/10/08 11:35 PM)
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#42929 - 03/11/08 06:44 AM Re: Is a 529 the best investment option for a child's money? [Re: itstoomuch]
anonymous anonymous Registered: 03/29/05 Posts: 1912	I agree with itstoomuch that you are asking the wrong questions. I also think that the answer to the first question may be "no", or it should be "no" if it is not. If she puts her money into a 529 plan that you own, it becomes your money to use in any manner that you wish. If her money is going into a 529 plan, it should be an UTMA/529 plan. This way, the money has to be used for her benefit.
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#42930 - 03/11/08 08:08 AM Re: Is a 529 the best investment option for a child's money? [Re: anonymous]
Drew Drew Registered: 01/09/00 Posts: 2353	We can split hairs as to control and abuse issues of UTMAs and 529--but I'm not sure whay you assume you need to invest the SS for her use later? Its nice if you chose to do so but its there for her current expenses . There maybe some merits to view that you use her money NOW to meet her current needs and to the extent that you can you save/gift new money for her education funds. The rules or views as to how to count 529s owned various which way for purposes of college need based aid have done several flip flops in recent years and may change again before a 6 year old is ready for college. If one were to aggressively save and invest all her SS you could well be talking about north of $150,000 in a pot. Social views aside and legal hair splits aside I'd sure not want my niece to be prejudiced as to aid by presence of $150,000 which somebody counts against aid if there were other options on same. At least under current rules a 529 owned by you and not held in UTMA/529 format seems more likley to escape such counting AND it offers more flexibility to reposition it. _________________________ Drew
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#42970 - 03/15/08 10:37 AM Re: Is a 529 the best investment option for a child's money? [Re: Drew]
KLSMN08 KLSMN08 Registered: 03/10/08 Posts: 2	Thanks everyone. itstoomuch - the reason I ask is because I don't know the answers and I want her to be able to have as much money as possible saved for college. I have to start somewhere with the questions. I'm not a financial expert so I thought I would turn to people who might be able to help on this forum. Thanks for your post, but all it did was make me feel like an idiot for posting. Anonymous had a good point on the ownership - in no way do I want to take her money as my own. Just trying to figure out how she can invest her money so it grows. Drew - your post was also very helpful. She doesn't need all of her SS income for her regular living expenses. She saves about half of it so I thought it would be good to invest it somehow so it grows. Thanks for the advice.
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#42971 - 03/15/08 03:11 PM Re: Is a 529 the best investment option for a child's money? [Re: KLSMN08]
itstoomuch itstoomuch Registered: 01/01/06 Posts: 693	This website has quite of bit of information on alternatives to 529. A 529 can be "fatal" to a young child's future. Look and explore all the alternatives. Seek professional and multiple advice. Look at advice until you find the contrary advice. (analogy is that you cannot recognize the winner until you see the loser)
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#42973 - 03/16/08 02:30 PM Re: Is a 529 the best investment option for a child's money? [Re: itstoomuch]
anonymous anonymous Registered: 03/29/05 Posts: 1912	Let me defend itstoomuch. I've been around this board long enough to know that his comments were not made to try to belittle you. He simply was bringing up a good point. One of the worst things that regular posters on this board can do is to simply answer questions as asked. The problem with doing this is that the question asker often doesn't have enough background knowledge to ask the appropriate questions. From my reading of itstoomuch's response, he was simply pointing out that you were trying to get 529 plan details without understanding if a 529 even made sense. Don't feel badly. This is common with many, many people. We just don't want you to put the cart before the horse. In terms of this money, I would ask yourself two questions: 1)Is it ok for this money (or part of it) to be tied up until she is 18? 2)Will this money (or part of it) definitely be used for higher education expenses? If the answer is not "yes" for both parts, a 529 plan is not the way to go. If the answer is "yes", a 529 plan can be considered and it's time to learn the ins and outs.
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#42975 - 03/16/08 10:54 PM Re: Is a 529 the best investment option for a child's money? [Re: anonymous]
itstoomuch itstoomuch Registered: 01/01/06 Posts: 693	No offense taken. The trouble of internet, is that there are short questions and short answers. There are some questions that are really none of my business but kept my answer short and questioning the OP. Not in any particular order: Niece is receiving SS benefits: Is it because of disability or survivors benefit? Niece is staying with GP. How old are GP. Do they have adequate income and able to care for niece to majority age? Is there medical insurance on GP and niece? Are there sufficient funds or system in place to provide for middle school and high school EC's if so desired? If the parents are deceased, was there life insurance? Are there other assets? Are there other people involved? How well off are the guardians? What is the aptitude of the child? Is the child well balanced? Is the health of the child good? If the guardians lose income or lose insurance coverage, what happens? A whole bunch of questions can be asked concerning how the SS income is being used and why...? other questions...? Summary: Your niece is on plan B. Plan A had failed in some fashion. We question if plan B is adequate, and if not, what can be done to strengthen this plan so that a 529 or other higher education plan can take place. Edited by itstoomuch (03/16/08 10:58 PM)
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