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NFT: Advice needed - starting a savings account/529 for my niece

knicks3031 : 6/29/2015 1:10 pm
My brother's baby girl is turning 1 in August and instead of getting her some more clothes or toys that she'll use for like 15 minutes, I'm thinking of starting an account for her to enjoy when she turns 18. Whether it just be extra spending cash she can have when she's going into college or money she can use for tuition, I just feel like getting a few thousand dollars then would be more useful than any gifts I can get her now.

With that said, I know very little about 529 plans or opening any type of account for a minor that would be gifted later in life. Any suggestions on how to go about this? Is a 529 my best option? Are there any tax considerations I need to take into account?

Any insights would be appreciated. Thanks!
Don't know the rules on opening a ROTH IRA  
jc in c-ville : 6/29/2015 1:19 pm : link
For someone that is one year's old but talk about a great gift. 70 years to grow on compounded interest.
I went with  
Mark from Jersey : 6/29/2015 1:20 pm : link
New yorks plan. Unsure about tax benefits as I am a New Jersey resident. Vanguard manages NY and has low fees. That was my primary reasoning for selecting them. Some different benefits or drawbacks from having the account in your name or hers but cannot speak to them. Also keep in mind penalties are given if not used for education.
1st question is  
giants#1 : 6/29/2015 1:21 pm : link
how do you want her to be able to use the funds? If you put the funds in a 529, then she has to use them for education expenses. If you want to give her the option, then just look at a mutual fund (or ETF) with low fees. Either way you'll be able to add funds over the years (if desired).

There's always tax implications.
re 529  
giants#1 : 6/29/2015 1:23 pm : link
you can open a 529 in any state even if you don't look there. NY has some of the lowest fees around, which likely outweigh any tax benefits gained from opening one in the state you live.
529 plans can pay for college costs but  
fbdad : 6/29/2015 1:24 pm : link
can't provide for "extra money" when she goes to school. Might just be semantics because college will require both cost and extra money to come from somewhere, but important to understand the difference.

You may be able to take a tax deduction against your state income tax if you buy the in-state plan. More important, be sure to check out costs of whatever plan you choose. You can buy any state's plan.
A minor must have  
jc in c-ville : 6/29/2015 1:24 pm : link
Earned income to have a R IRA opened in their name.

At 3, she can deliver drinks to her fathers friends while they host Giant's viewing parties. Problem solved.

Seriously though, I believe the 529 can focus on tuition for college and is a win-win if planning to attend college in the state they live in.
Do her parents have a 529  
pjcas18 : 6/29/2015 1:25 pm : link
for her?

It's probably best to write them a check for her 529.

that way that money can be aggregated with their other 529 plan

otherwise, what are you going to give her? $100? $500? at that amount you're almost better off buying a savings bond.
Yes, have her parents set up the account  
ron mexico : 6/29/2015 1:27 pm : link
and just donate money into it

Setting up the account is easy send them to the link below (if they want to use the NY plan)
Link - ( New Window )
RE: Do her parents have a 529  
giants#1 : 6/29/2015 1:28 pm : link
In comment 12347840 pjcas18 said:
Quote:
for her?

It's probably best to write them a check for her 529.

that way that money can be aggregated with their other 529 plan

otherwise, what are you going to give her? $100? $500? at that amount you're almost better off buying a savings bond.


A lot of 529s allow you to add relatives as contributors so you can just deposit the money directly in the account (cuts out the middle-man).
Some 529s would allow you to contribute if the parents open it  
jjgmrg901 : 6/29/2015 1:44 pm : link
Also people are correct that the money has to be used for education but that can be a broad interpetation. Does not have to be college, can be a trade school.

Thanks guys  
knicks3031 : 6/29/2015 1:46 pm : link
I figure between birthdays and presents for 18 years, I'll end up depositing between 4-5k. They do have a 529 already set up for her, but I thought it'd be nice if I did something on my own to give to her when she's older. If it's really inconvenient this way, I could just send my brother money to deposit himself.

I live in NY, my brother lives in Maryland. So would she have to go to school in the state where the 529 is set up?

Also what happens in the event that she doesn't go to college, or gets a full scholarship? Is there any recourse on these plans?
And the college  
spike : 6/29/2015 1:47 pm : link
Does mot have to be in in-state
RE: Thanks guys  
giants#1 : 6/29/2015 1:54 pm : link
In comment 12347878 knicks3031 said:
Quote:
I figure between birthdays and presents for 18 years, I'll end up depositing between 4-5k. They do have a 529 already set up for her, but I thought it'd be nice if I did something on my own to give to her when she's older. If it's really inconvenient this way, I could just send my brother money to deposit himself.

I live in NY, my brother lives in Maryland. So would she have to go to school in the state where the 529 is set up?

Also what happens in the event that she doesn't go to college, or gets a full scholarship? Is there any recourse on these plans?


She could go to any school, you're not limited to ones in the state with the 529. IIRC, you only get tax benefits if you set up the 529 in the state that you live in.

If she doesn't go to college, there are penalties on withdrawing the money similar to withdrawing from a 401k pre-retirement age. If she gets a full scholarship (assuming this only covers tuition), she can still use the 529 for things like housing, books, meal plan, etc. Basically any expense related to attending college.

She'll probably appreciate it more if you just put those deposits towards a low cost mutual fund. Just open an account with Fidelity/Vanguard and make contributions whenever you please. This should perform the same as a 529 (which is simply a mutual fund(s)) but doesn't have any strings attached (i.e. she can buy a car with it, travel the world, etc)
RE: RE: Thanks guys  
jjgmrg901 : 6/29/2015 2:10 pm : link
I agree about the mutual fund. It should perform as well as a 529 or even better. That way when she finishes college she will have a nice down payment on a car or the start of a nice portfolio.
She is lucky to have you as an uncle



n comment 12347892 giants#1 said:
Quote:
In comment 12347878 knicks3031 said:


Quote:


I figure between birthdays and presents for 18 years, I'll end up depositing between 4-5k. They do have a 529 already set up for her, but I thought it'd be nice if I did something on my own to give to her when she's older. If it's really inconvenient this way, I could just send my brother money to deposit himself.

I live in NY, my brother lives in Maryland. So would she have to go to school in the state where the 529 is set up?

Also what happens in the event that she doesn't go to college, or gets a full scholarship? Is there any recourse on these plans?



She could go to any school, you're not limited to ones in the state with the 529. IIRC, you only get tax benefits if you set up the 529 in the state that you live in.

If she doesn't go to college, there are penalties on withdrawing the money similar to withdrawing from a 401k pre-retirement age. If she gets a full scholarship (assuming this only covers tuition), she can still use the 529 for things like housing, books, meal plan, etc. Basically any expense related to attending college.

She'll probably appreciate it more if you just put those deposits towards a low cost mutual fund. Just open an account with Fidelity/Vanguard and make contributions whenever you please. This should perform the same as a 529 (which is simply a mutual fund(s)) but doesn't have any strings attached (i.e. she can buy a car with it, travel the world, etc)
The tax break favors the 529.  
WideRight : 6/29/2015 2:31 pm : link
15 years of profit tax-free, so long as its used for education. No way a regular mutual fund can compete with that.
I believe the account  
spike : 6/29/2015 2:34 pm : link
can be transferred to someone else if your niece decides to forego college.
RE: The tax break favors the 529.  
pjcas18 : 6/29/2015 2:35 pm : link
In comment 12347964 WideRight said:
Quote:
15 years of profit tax-free, so long as its used for education. No way a regular mutual fund can compete with that.


i also believe I read a rule that it doesn't even need to be used for education for the beneficiary. Let's say this kid gets a full ride to school, it can be used for another child or even a adult for education without penalty.

Even nieces, nephews, grandchildren etc...
RE: RE: RE: Thanks guys  
knicks3031 : 6/29/2015 3:12 pm : link
In comment 12347928 jjgmrg901 said:
Quote:
I agree about the mutual fund. It should perform as well as a 529 or even better. That way when she finishes college she will have a nice down payment on a car or the start of a nice portfolio.
She is lucky to have you as an uncle



n comment 12347892 giants#1 said:


Quote:


In comment 12347878 knicks3031 said:


Quote:


I figure between birthdays and presents for 18 years, I'll end up depositing between 4-5k. They do have a 529 already set up for her, but I thought it'd be nice if I did something on my own to give to her when she's older. If it's really inconvenient this way, I could just send my brother money to deposit himself.

I live in NY, my brother lives in Maryland. So would she have to go to school in the state where the 529 is set up?

Also what happens in the event that she doesn't go to college, or gets a full scholarship? Is there any recourse on these plans?



She could go to any school, you're not limited to ones in the state with the 529. IIRC, you only get tax benefits if you set up the 529 in the state that you live in.

If she doesn't go to college, there are penalties on withdrawing the money similar to withdrawing from a 401k pre-retirement age. If she gets a full scholarship (assuming this only covers tuition), she can still use the 529 for things like housing, books, meal plan, etc. Basically any expense related to attending college.

She'll probably appreciate it more if you just put those deposits towards a low cost mutual fund. Just open an account with Fidelity/Vanguard and make contributions whenever you please. This should perform the same as a 529 (which is simply a mutual fund(s)) but doesn't have any strings attached (i.e. she can buy a car with it, travel the world, etc)



Thanks!
Good job uncle  
prh : 6/29/2015 3:37 pm : link
The 529 offers more options for you as the contributor. You actually have control of the fund.
If for some reason your niece isn't worthy of collecting[drugs, improper behavior etc.]. You still will have access to the fund. Which you can use for other family members education or you can withdraw at you current tax rate.
The above is informational, and I wish nothing but success for her.
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