Investing for children's education (funds, pay, taxes, transfer)

[spalam01]

Me and my wife are planning to invest (using $50K cash that we have in our savings account) in mutual funds for our kids (aged currently 3 and 2) education.
I am wondering if investing in our kid's names is a good idea as I am worried if it would jeopardize their ability to get any financial aid / scholarship on their own.

I am not sure how does financial aid works?

Please advise the best way to set this up without jeopardizing their ability to get any financial aid / scholarship on their own in the future.

By the way, I also have 529 savings plan (with my kid's names in it) that I have invested $12K so far, though I am not currently contributing to it.

[jghorton]

We are similarly planning to pay/invest $10K per year in each of our 5 grandchildren's college expenses. I'll be pulling the money out of IRA's starting next year (as part of my RMD's (70-1/2)), which also corresponds with my first grandson starting college.

I'm wondering if there is a tax advantage to passing these funds through 529 plans ... or if I should simply pay the taxes and then 'gift' the money to their parents.

[rjm1cc]

I would put as much of the money in a 529 plan as you can. You might be able to put the 50,000 in in one year. Check the rules.
The reason is growth is tax free and you can change the child as needed.

Money in a child's name is bad. They have control over the money and can use it for what ever they want at 18/21. You can not use it when they are a child if needed. (some exceptions)
Look up Uniform gift to Minors for money in child's name.
Money in child's name will hurt then for financial aid

[rjm1cc]

Originally Posted by jghorton

We are similarly planning to pay/invest $10K per year in each of our 5 grandchildren's college expenses. I'll be pulling the money out of IRA's starting next year (as part of my RMD's (70-1/2)), which also corresponds with my first grandson starting college.

I'm wondering if there is a tax advantage to passing these funds through 529 plans ... or if I should simply pay the taxes and then 'gift' the money to their parents.

Money should go to a 529 plan. Probably in your name. I think this will help most with financial aid and you can also change the child due to current facts.

[GeoffD]

The way financial aid works, money in your 401(k) and IRA accounts largely doesn't count. Home equity in a 'normal' house mostly doesn't count much. Anything in your kid's name is expected to be spent to zero. Bad things can happen with your health or your career. As a worst case contingency plan, you're better off maxing out your 401(k) and applying money to your mortgage before funding a 529.

[randomparent]

If you have $50k to invest and $12k already put aside in 529s for toddlers, your kids probably aren't going to qualify for needs-based financial aid. You simply make too much money. After retirement funding, our own philosophy for college was to aim for thirds: 1/3 in individual 529s for each child, 1/3 in traditional investments under parental control, and 1/3 child's responsibility (savings from summer jobs and merit aid/scholarships). It's worked out well for us.

[StealthRabbit]

Originally Posted by GeoffD

The way financial aid works, money in your 401(k) and IRA accounts largely doesn't count. Home equity in a 'normal' house mostly doesn't count much. Anything in your kid's name is expected to be spent to zero. Bad things can happen with your health or your career. As a worst case contingency plan, you're better off maxing out your 401(k) and applying money to your mortgage before funding a 529.

Yes^^^

plan accordingly. It is often MUCH cheaper for your kids / grandkids to get loans, than for your HUGE opportunity costs and potential life changes.

You can chose LATER to assist to repay their loans (with your deflated $$).
It can be Good incentive / education in having your kids arrange / commit for 100% of their college funding (they are less likely to change majors / drop out, and they will be more engaged in the EDU experience / demanding more value for THEIR dollars spent out of THEIR pocket.

In my case:

1. Our state offers FREE Full time college for high schoolers who can pass College entrance exam. Mine had their AA and full University "Jr" Transfer status by age 17
2. I started my kids in ROTHs at age 12, (and matched them 100% for wages until age 18) they each had over $25k by age 18 (not attachable by FAFSA)
3. As Homeschoolers, they each built homes during Jr High, so they each had $70k in their own home equity (Not attachable by FAFSA)
4. They each got 100% loans for school (tho did not need the $$, but used it ALL for school related, and freed up their own jobs / investment income)
5. They each invested the equivalent $$ into stocks / trading (They made a killing in gains (era of netflix and AAPL / AMZN gains))
6. Consolidated their School loans for 20 yrs @ 2.7%

12 - 14 yrs later... they are still surviving (well) Each did very well in college, and are professionally employed, tho have skilled trade experience to earn $100k/ yr if they ever lost their 'cush' jobs. (They each had $200k in assets the day they left College (and $16k in college debt @ 2/7%)

ZERO $$ input from us on college for our kids...(they were GONE and on their own financially by age 18) tho 12 + yrs of homeschooling and helping them LEARN investing / life skills / skilled careers / and build their own homes cost us a LOT of opportunity loss. (+/-) Our version of "Investing for children's education"

BTW: Not rich... single earner hourly wage (never over $50k) 30+ yrs of Night Shift factory jobs getting here.

Another good (?) idea... have (help) them buy and manage a duplex / 4 plex during college... if bought and rented at right price, they will be enjoying cash flows during school, and equity gain when they resell. They will learn a LOT doing this (probably similar 'value' to what they learn in class...) But... the objective!!! Life-long-learnings-to grow-responsibility-and-wealth'