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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.
Please no Bank of Mom & Pop loans. Time with 5 degrees to make some money. No credit cards, no student debt, no personal loans. Only debt left is for a car & the house they live in.
Don't know if they have emergency fund. In their case have 6 months of expenses in a savings account.
Technicalities and process aside, I just think it's a bit strange that they want access to that money when they can pay themselves. $10,000 isn't that much.
I would stick with your original goal to pass it on to the grandkids and just not make changes now.
I would change ownership to her and wash your hands of it. Let them decide how to use it with no judgement. After all, you set up the plan with the intent of it benefitting your daughter and her husband's student loans being paid off does benefit her and their children. The fact that he has 5 degrees and only $10k student debt indicates to me that he/they have been financially responsible.
@hokiefan Yes! I'm 62. Not sure why I haven't learned something like that by now. My wife and I have talked too much about this. Our daughter comes back a couple times over a year. At some point (after the first time, I guess). I should just say I gave my thoughts, doesn't seem to make sense, but it does have to get moved to you anyway, so here you go.
I guess I feel she'd be 'offended' that I don't want to stay involved. As much as I'd make sure to say that's not the case : )
@karag - I could kinda understand their thinking. Why not use it now, rather than sit for years. and even at $700K, who knows if college / whatever 2ndary ed their kids are going to want will use it all up, the way college costs keep rising : (
@gwoodle They aren't on a budget. Nice incomes, don't squander $$. No bank of mom & dad loans? Part of my view was saying to use your own $10K now. IF something happens / you need the emergency money, we would be there for them.
And like us saying we'd back their mortgage when looking to buy a house - waive the mortgage contingency... they say they want to do things on their own / don't want our help. But then I point out the 529 was our money / a bit contradictory - no help wanted to buy house, but looking to use the 529.
I know my father gave me my mortgage on 1st house decades ago so I could waive mortgage contingency. Whatever it takes to get an advantage.... and at least back then - maybe get house at a little lower price? $150K and no mortgage contingency or $160K from someone else but risk of them not getting mortgage?
Overall though, it touches on frustrations I had / have about money. Been fortunate... my father bought phillip morris back in 1950s. Grew a huge amount (didn't reinvest divs though... that would have been even better!). Gave to me and siblings, but never said what we should do with it. Raised us with strong work ethic. He never took vacations, ran a small business till days before he died...
So we have this $$ and we live frugal / don't feel 'comfortable' living beyond our salary. and and our kids are the same.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,061 posts, read 7,497,585 times
Reputation: 9788
Quote:
Originally Posted by BeerGeek40
I think I agree with what you are saying.
529's seem like just one more hassle and I never bothered opening one.
529 has a place. Works for some participants. I guess, it worked well for OP until its in a QUACK situation.
We got in 529, in our state (OR) at inception, 2001(?). We have a small remainder of a $1K-2k, which 2024 (?) may have the option to either retain or close account to the beneficiary as a Roth (?).
We mostly use the UGMA path because there was no 529 (1985).
I can see how a 529 becomes overfunded. We frontloaded UGMA and at for many years it was overfunded, until 9-11 and dot.com collapse hit the UGMA just as we/DS needed college funds. Full payer, although low income bracket. We/DS eventually took student loans amounting to 80% of Cost-of-Attendance. Best financial decision, I ever made. Really.
I haven't followed 529 ins/outs which are considerable-Iike IRAs and other tax qualified plans.
Y5MV
If there is a couple hundred thousand, and he only owes $10k, it won’t even make a dent. I’d give it to SIL. You get to be a nice guy, and there is plenty left for the grandchildren. I agree with everyone who said it time for SIL to stop being a student. He’s done pretty good if he has 5 degrees and only owes $10k.
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