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529 plan in a relative's name - how to use it?

ZamzamZamzam Registered User Posts: 854 Member
edited August 2008 in Financial Aid & Scholarships
I was given a rather large gift of money in the form of a 529 plan from my uncle. My mother thinks that if we do not use the entirety of it this year, we will have to claim it on our taxes and will, as such, lose money in grants from my college; I think she's right, and we asked my aunt--who is my financial manager--to tell my uncle to send the entire account to my college. He ended up sending about $3000 for this semester, which leaves about $5000 unpaid (and about $8000 left in the account). When we were sent the math as to how he calculated this amount, it included only tuition and fees; no room, no board, none of the various other things for which I am being charged. Given that my mom has already taken out loans for this year--with the entire account being used in mind--my family is understandably upset by the necessity of new loans.

I am simply wondering: are there specific things for which 529 plans can be used? I find it ridiculous that an education plan could not be used for room and board or for any school-related fee.

I would appreciate a prompt response, given that my mother is currently freaking out downstairs trying to figure out how much she needs to take out in new loans, and my aunt still has not returned my call.
Post edited by Zamzam on

Replies to: 529 plan in a relative's name - how to use it?

  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    zamzam, 529 money can be used for room and board, books, tuition, and other fees, materials and expenses that are specifically required by the college.
  • ZamzamZamzam Registered User Posts: 854 Member
    Okay... I'll just, um, harass my uncle then.

    Thanks for the information, though.
  • milkandsugarmilkandsugar Registered User Posts: 2,869 Senior Member
    I believe a 529 plan covers tuition, room board books and related expenses.

    TIAA-CREF - 529 College Savings Plans
  • franglishfranglish Registered User Posts: 2,308 Senior Member
    Also, financial aid could be affected next year. Is it in your name, or your uncle's or someone else's name? If it is in someone else's name, you don't even have to report it on FAFSA. If it is in your name, though, you do. This money will appear as assets for you, and they could deduct the amount of it for the following financial aid year. It might be the best thing not to use it until your last year, so they can't count it against you.
  • ZamzamZamzam Registered User Posts: 854 Member
    The name on the account is "*uncle's name* FBO *my name*."

    I don't quite understand why *not* using it would help, franglish. To my understanding, if I keep it longer than 12/31/08, then it counts as an asset during the 09/10 school year, thereby reducing my financial aid.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    I'm pretty sure it has to do with who is the "owner" of the account. The student can be listed as a beneficiary, but not be the owner. The owner has to authorize the withdrawals, and since zamzam's uncle already directed money be sent to the college, that would suggest the uncle is the owner of the account, not zamzam.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    Zamzam, are you attending a school that only uses the FAFSA to determine financial aid, or did you and your parents also have to file a CSS Profile application for aid? Are you going to a public university? Probably then it's FAFSA only.
  • ZamzamZamzam Registered User Posts: 854 Member
    I'm going to a private university, so we had to fill out both the FAFSA and the CSS.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    In that case it's likely the 529 money will be viewed as a resource for you, but it's not like it's a ton of money. I'm no expert on these things, but have read about it frequently. I don't know what difference it makes if you use it now or use it later since it'll all end up going to the college eventually. I have a feeling it will all come out in the wash pretty much the same either way by the time you graduate. In the meantime, give your mother some peace and get your nice uncle to draft another $5000 to the school to help make ends meet for this year.

    Said from my total lack of expertise with invested money. ;) I'm certain others here with more information can offer more insight.
  • entomomentomom Registered User Posts: 23,662 Senior Member
    As far as what the 529 money can be withdrawn for, this is key:
    'rentof2 wrote:
    expenses that are specifically required by the college

    So, for example, this includes R&B but it doesn't cover room furnishings, etc.

    Since the owner of the account is your uncle, you will not be affected, either by taxes or FA. Here's a good explanation:

    FinAid | Saving for College | Section 529 Plans
  • franglishfranglish Registered User Posts: 2,308 Senior Member
    The reason I suggested to use it later is that if you use it now, they may expect you to have the same amount of money and it will figure into the FA renewal (you have to reapply for financial aid each year, and each year the assets will change). True, it's not a huge amount of money, even though it's very nice. But it will have an effect on next year's renewal. That is why I am suggesting that you don't use it until senior year, if at all possible, because you will not be renewing after that year.

    My mother has a 529 for my daughter who is in college. Since it is in grandma's name, it doesn't count either for my D (the student) or for us (her parents). We will try not to use it until the last year, because we are getting a nice FA package, although we do have to pay several thousand $. We will pay for the entire senior year with the 529, after the school has determined what our FA package will be for that year, FA will not be affected because we will not have to renew any more. Does that make sense? If not, I apologize. It's very confusing.... :(
  • dlbarberdlbarber Registered User Posts: 246 Junior Member
    Zamzam - If you use it all this year, with no more loans, what happens next year? Will mom have to take out even more loans? My parents have a 529 for each grandchild. My D's have Perkins and Subsidized Staffords. We use part of the 529 to pay the gap. If we declined the loans each year, the 529 would have been gone the first year for D1. That would have meant huge loans of other types for the following years.
  • cptofthehousecptofthehouse Registered User Posts: 26,432 Senior Member
    Profile does ask for 529 plans if the student is the beneficiary.
  • LongPrimeLongPrime - Posts: 5,208 Senior Member
    529: If the 529 is owned by uncle, who has full rights of ownership, including the withdrawal of you being the beneficiary at any time, for no reason, can you therefore say that you are a receiptant for the 529 funds? Do you have a verbal or written contract from your uncle?

    If the 529 is owned by you or your mother, but funded by your uncle, then you must say that you are the beneficiary.

    Example: 529 owned by Uncle: Suppose your uncle never tells you that you are the beneficiary or has named another person as a beneficiary but then changes beneficiary designation to you.

    Suppose your uncle pays for your tuition directly to the school. How would you know if the funds are from a 529 or from cash? Suppose Uncle secretly pays the tuition, how would you know it was from him if he never tells you?

    PLUS, Stafford, Direct Student loans are dispersed by semester or quarter system. Thus if you requested $12,000 for the year, $6000 will be disbursed at the beginning of each semester ($4000/quarter=3). Suppose you requested $12,000/yr (total tuition $12,000) and then unbeknownst to you, Uncle pays $5000 fall tuition directly to the school in your name. You now have a +$5000 balance in your school's account. The school will shortly see that excessive funds and will/should refund the amount to you (remember the school does not care where the funding comes from, it only wants to see a $0 balance)
    You take the $5000 refund and pay off the loan because it is not permissible to borrow more than the cost of tuition (or COA).

    PLUS, Stafford, Direct student loans are adjustable in amount each payout period and refundable.

    Consult your advisor. Appears that your aunt is doing an OK job as your financial advisor.
  • ZamzamZamzam Registered User Posts: 854 Member
    We did out the math for four years under 4 different circumstances: emptying the fund right away, going by the calculations my uncle was using and not reporting the 529, going by the calculations my uncle was using and reporting the 529, and not using my uncle's money at all.

    The difference between emptying it straight away and using his calculations and not reporting was about $200, while the difference between reporting and not reporting was around $6000. I'd rather not take the risks of the funds losing even more value and the school deciding that I do need to report the 529 plan.

    The CSS does have a "Are you expecting to receive any money from relatives, friends, etc." question, so my family thinks that that includes 529 plans.
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