529 contribution or just pay college my self?

[jzellman]

My mother passed away last month and I inherited about $40,000 and don't really need the money. I have 2 nephews ages 16 and 13.

Should I deposit the money into their 529 accounts or just put the money in a Savings account and just pay their tuition?

Don't know the exact formula but I'm sure the more money in 529 accounts the less in potential Financial Aid. But I also rea somewhere that if I pay directly it could be considered income to the kids???

Thanks

[dcandmc]

Money in 529 accounts that you own that name your nephews as the beneficiary will not have an impact on need-based financial aid for the nephews until the 529 funds are actually used for their benefit. This is the same situation you would face if the money was simply kept in a savings account. In both cases, once the funds are given to the nephews or paid to the college on their behalf, it will need to be reported on their financial aid forms as untaxed income received.

The main benefit you would get from using 529 accounts instead of a standard savings account is that the 529 account earnings would be tax free if used for the beneficiary's qualified education expenses.