529 - paying off a student loan for my daughter's husband? Pro / Con? (Missouri, Texas)
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Location: Was Midvalley Oregon; Now Eastside Seattle area
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Quote:
Originally Posted by E-Twist
It's only 10k. It hardly matters if you use the 529 or write a check. I admit I would be mortified to have an in-law paying anything for me.
Depending on 529 investment choice. 10 yrs return, not including dividends: SP500=2.1x; Nasdaq Index=4x; Russell=1.4x; DJI30=2x; College cost based on CPI, "Therefore, according to U.S. Bureau of Labor Statistics, $10,000 in 2013 has the same "purchasing power" as $12,548.85 in 2023 (in the CPI category of College tuition and fees)
Personally I would keep the money with the intent to use for the grandchildren. At current 529 valuation OP has "couple hundred thou $ " for a infant and one or possible two more Gkids. He's overfunded for a any public school and maybe overfunded for private college, depending on distribution over 2-3 Gkids I know too many people supporting their adult childrens' lifestyles to be enamoured of giving adult children money YCMV.
No telling if the grandkids will be scholars or burnouts, but it's nice to have it for them if they need it.
As for the 10k, pay it off if it makes you happy. See if it's the end of them asking for money.
OP: QUACK=QUalified Account ACKnowledgement (or in your case, ANGst)
GL
YMMV
With all the degree salad on the kids side and their income and OP's situation - where is the big deal about 10k? Talk to your CPA or just give them cash to make you feel good..
Just remember that every penny you give someone today comes off the end of your retirement (depending on your total savings) when you need it the most!
We finally told our kids after several years of giving, that except for absolute emergencies, The 1st National Bank of Mikey is closed.
Transfer ownership to daughter. The cost of college will continue to rise and the grandchildren will be cared for. Otherwise, take the tax hit and gift the money as you see fit.
You would not be giving them $10,000. You would be giving the entire thing to your daughter and after that she can do as she wishes with the money and more than likely, her husband can do as he wishes with the money because she will do as he says, if only to keep peace in the family.
I suggest you save it for the grandkids.
He has 5 college degrees, he can surely pay off a $10,000 student loan?
You never know what the future will bring. Maybe your daughter will decide to go back to school after her kids are old enough.
There is no guarantee in this life that there will not be a divorce, so that possibility should be figured in.
I agree with you 100%. Giving the account to OP daughter will give her the whole account, not just $10k.
Something tells me that the daughter and son in law are not doing as well as they make the OP think. I think they're under water some, need that 529 to bail themselves out.
I also think he owes more than $10k, probably closer to $100k
I agree with you 100%. Giving the account to OP daughter will give her the whole account, not just $10k.
Something tells me that the daughter and son in law are not doing as well as they make the OP think. I think they're under water some, need that 529 to bail themselves out.
I also think he owes more than $10k, probably closer to $100k
I agree! So glad you made this point!
If they were doing well, $10,000 could be paid off in no time. $250 a month - less than any car payment & the size of a more student loan - would take a little more than three years to pay off. $500 a month - the size of a car payment -would take less than two years to pay off. $1,000 a month would take less than one year to pay off.
With five degrees, $10,000 shouldn't be a huge amount of debt to pay off. Yeah, something wrong.
There is a difference between helping your child and enabling a bad financial situation.
Wow! 6 pages! Thank you all for all your comments! Gave me a whole different perspective.
I think when I posted the question, my intention was 100% concerned with the tax issues / complexity of using $10K of the 529 I have for my daughter / grandkids to pay off my SIL's remaining student loan.
I don't think I had a single thought about anything other than the numbers related to paying from a taxable vs. tax deferred-free account and the process to do it to make sure we don't do something wrong related to tax exemption of the money.
While I am VERY paranoid (just cause I'm paranoid, it doesn't mean they aren't out to get me) / constantly joking with wife and kids about 'the small print', reading between the lines with anything related to business, AND do argue with wife and kids, it's usually about stupidly trivial things / mannerisms, what I view as bad habits... but not big money issues.... they are all like me and overall frugal / not spendthrifts.
So it's nice to see I'm not paranoid about everything : )
Certainly not meaning to be argumentative!!! Just explaining:
Yes, $10K is not that much for them or for the 529.
They are simply asking, I feel and will confirm with them, on a numbers basis.
Effectively, it's something like them asking 'we are buying something. We can put it on a credit card and pay an x% surcharge. Or pay cash. Thoughts? (they, like us, pay credit cards off full every month / never pay interest). I'd point out the 2% we get back on all credit card purchases. And there's some extended warranty benefit...
Or as a more similar situation 'we have an IRA and are going to be hit with an annual maintenance fee at the start of the year. They can take it out of the IRA's cash or we can write a check for that fee. Which do you think is better?'.
No malice / no ill-will / no financial hardship issues. Simply - which makes more sense on a $ basis.
I (owner) have a 529 for my daughter (beneficiary). She's married and just had a kid.
She's done with school.
I am in NJ, they are in CT. The 529 is with another state's 529 (so no state tax deductibility issues).
My wife and I funded it 10+ years ago and haven't put any new money in it.
There's a few hundred thousand in the account now. I view it as a way to pass on assets / a 529 for grandkids (again, 1 is already here - 5 months old : ) Although I have NO qualms with it being used for other people (husband).
He's done with school with 5 degrees! has about $10K of 'student loans' still outstanding.
They are asking, with the secure act, if her 529 can be used to pay off his student loans.
From what I can find out, likely yes. But it's a chore / several steps. And right now, with the market down, holdings are down.
What would you say? Are there any gotchas I don't know about?
Income limit?
What constitutes a student loan?
Any types of student loans aren't eligible?
Are there tax implications with any of the steps?
From what I can see, steps are:
1. Me change ownership from me to daughter.
2. She sets husband as beneficiary (from herself)
3. They have 529 pay out the $10K lifetime limit for the loan.
4. She changes beneficiary from him to the 1 kid they have so far.
5. If / when they have more kids, they spiit up the account to have different beneficiaries? 1 pot of money gets split into 2 when they have 2 kids / 2 beneficiaries?
6. Then for 3 kids, each account gives up 1/3 to a new 3rd beneficiary account?
YES, some of those steps are inevitable / the expected process. Really, most will happen for the grandkids regardless of the husband loan or not.
My preference: they pay $10K now from their savings - they are doing well. She has 2 degrees, he has 5. so they have savings - they save on the interest on the student loan. And are done. They lose $10K from potential taxable gains over time.
They keep thinking this is better: Pay 10K from 529 now - it takes it from assets that have dropped a bit. Another reason not to do it. They lose $10K from tax free gains over time.
Part of their thinking is that it's possible that the 529 won't get used up by their kids in 18+ years. so it can spare 10K now.
They've asked a couple times over the last couple years. I've offered to give them the 10K or as a loan...
Besides the account re-registration to do now, I'm thinking there'll be a gotcha that trips them up for the effort. And then they owe tax AND penalty on the $10K disbursement.
@karaG - sorry, 1 more thing - 10K is not that much? so OK to take out of 529? There's still lots to compound? Or OK, they can take it out of the bank account?
I just called my 529 company. changing ownership (to anyone, even not a relative) is just a form... and not taxable event?
And changing beneficiary (a relative) is just a form also, and not a taxable event when it's changed to a relative.
The 10K can be used for 'qualified' student loan (I gave the scenario of a company makes a general loan for the student who uses it for school.. And then you pay that off with 529 money and IRS disallows it).
Seems the 'all the paperwork' argument that it's not worth it moot.
Back to the - would you pay the $10K from savings account or from 529 when the 529 has much more and won't be needed for years - question.
I wouldn't trust them that it's not a taxable event. I would check with an accountant. That sounds fishy to me.
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