Greetings @clafond:
After giving this some thought, I've got some suggestions for you. Let me preface that these are not recommendations, but some things you may not have already considered. Note the disclosure in my signature. Seriously: Note it! Also, this is a lot of suggesting, so please, please, please come back with questions, but don't wait any longer to open a savings account! I tell people all the time that compounding is a double-edged sword: The more you wait, the more you lose!
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Okay, first suggestion! Coming into a bit of a windfall, you might be a good candidate for a prepaid plan, like the Private College 529 Plan. Unlike savings plans, prepaids ensure a dollar invested today is worth a dollar in tuition at a future date towards participating schools. Oregon does not have a prepaid plan, which is why I suggest you take a look at the PC 529 Plan. It may or may not be a good fit for you, but it would certainly be a good deterrent from cashing out when your daughter hits 18. Instead, the discussion is more likely to focus on which of the schools might make the most sense, which is a good discussion to have.
Regardless, you probably don't want to invest everything in a prepaid plan, because then you lack the opportunity for market appreciation. It also does not cover costs such as room & board, so you need to supplement those savings. Or maybe you just hate the prepaid idea, which is fine, too.
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Given that, my second suggestion is to consider a UTMA/UGMA through a 529 plan. Once you open an UGMA/UTMA account, it can never be revoked. That's the biggest drawback. But the UGMA/UTMA can be converted into a 529 account. When that happens, it remains a "custodial 529 plan." It can never be revoked, and the conservator manages the account until the beneficiary hits the age of majority. I sometimes mention this to couples going through a divorce to ensure the 529 account must be used for its intended purpose, but this might be a good option for you, because it sounds like you don't like the idea of your daughter being the account owner and potentially revoking the account. Making it a custodial account will make this a lot more difficult until she turns 18, and give the account the benefit of tax-deferred growth on that windfall of contributions.
If you use the Oregon plan for that Custodial 529 account, you can still contribute and get the tax benefit even though you're not the account owner. Contributions to an Oregon 529 plan of up to $2,330 (for 2017) by an individual, and up to $4,660 by a married couple filing jointly, are deductible in computing Oregon taxable income (Source). So you can have the custodial account in the Oregon plan, and contribute that two or four grand to it yourself (outside the windfall), and get a sweet, sweet state tax deduction without having to open a second 529 plan.
Lastly, you could consider yet another option. Are you ready? I know we've been talking awhile, but bear with me. You could open a custodial account with another plan, such as California, Ohio, or New York (complete list of 5-cap plans can be found here). I know you've been having trouble picking, but really any of the 5-cap plans for out-of-state residents is going to be a solid choice. So if you don't like Oregon for any particular reason, you use the out-of-state account for the windfall, and open an Oregon account for yourself to make future contributions. This would give you access to "the best" 529 plan possible for the windfall, and tax deductions for yourself and future contributions. You could ever use yet another portion of the windfall towards a prepaid plan, as I mentioned earlier.
At the end of the day, I cannot recommend a course of action, but I can say with certainty that any of these are good options. Many 529 plans are less expensive than retail investments (they are, on average, lower in cost than the average mutual fund). So I still think 529 plans are the best option for college savings for most families. But ultimately, you'll have to make your own decision on what works best for you!
So yes, different states have different benefits to superfunding when it comes to their state tax deduction, and Oregon does allow you to carryforward benefits. But as these are your daughter's assets and not yours, it won't matter, so for your situation (bolded for future readers) there is no benefit from a superfunding standpoint to use an in-state or out-of-state plan.
Good luck,
Brian Boswell 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.
