In adulthood I found travel to be a broadening experience and wish I had done it in college when the stay could have been months instead of the brief time we get for vacation as working adults.
I have friends who have a child who is 12 now. I’d like to contribute some money so that she can study abroad and have the resources to travel to other cities with friends on weekends or school breaks. Without going into the details, it is likely I won’t be here to give the money directly in 6-8 years. Does anyone have advice on how to make a gift that would be used for the intended purpose should the child decide to study abroad?
Set up and Contribute to a 529 plan for her. She can use it to either pay for the abroad program to her university or use it for other years expenses and then have her own Money she didn’t need to spend on that to use for abroad. That’s the simplest way. You can of course give her money outright now up to 15k without needing to file a tax form and just say that what you’d like her to use it for. Or you could leave money and directions in a will or even set up a trust ( but that’s mire hassle and costs money to do).
I just spoke with two friends about college last night. Both said setting up a 529 plan is a mistake.
They said the money in 529 is considered their children’s assets so it would count against them when they seek finacial aids from colleges they apply to.
529s are very restrictive and aren’t really geared, IMO, to your goal.
If you trust the parents to use the money exclusively for your desired wishes, the most simple and cheapest way to go would be to set up an account with them for that purpose. Or another relative or even unconnected adult you trust to be honest and responsible.
If it is very important to you that the money will only be used for those specific purposes, you could do a trust but that would cost more.
That’s really generous, bad golfer. I think a 529 might work well. According to Forbes, “529 plans owned by dependent students are not counted as student assets but as parental assets, which is good since 20% of student assets go into the formula to determine Expected Family Contributions. Withdrawals are typically not counted on the FAFSA form.” Private colleges may count them differently, but they have their own formulas anyway.
Most study-abroad expenses consists of tuition, fees, and approved room-and-board expenses, which are eligible to be funded with a 529 plan college-savings account, just like they are in the US. Required textbooks are alo covered. So a 529 can cover qualified study-abroad plans. You may also get a state tax deduction for contributions to such a plan (depending upon your tax state).
A drawback is that unless the plan is owned by the parent or child, you can put a major crimp in financial aid processes. Money from a 529 other than owned by those parties are considered untaxed income to the student. Also unless someone is directing and controlling those funds , they can be disbursed for other reasons. If you do not expect to be able to manage the disbursement of those funds,they may not go as you please unless you set up a trust with direct terms.
Unless it is imperative to you that the funds go as stipulated, I would have the parent of the child open a 529 and then put the funds in there, giving said parent and child a letter expressing your wishes as to how you want the funds directed. It is possible that your wishes would be disregarded but unless that is a pressing need on your part that the funds absolutely go to that purpose, I’d take the chance. Another issue would be the trustworthiness of the person you are naming as account owners. That person can certainly do as s/he pleases with the account
Financial aid at FAFSA only schools tend to include 529 funds as parents’ assets (about 6% of amount goes to EFC each year) even if the account is owned by student. For PROFILE schools, they can include it anyway they please. So if the family is likely to qualify for financial aid, understand that there can be an impact on that aid when 529 funds are available.
@rphcfb ,the ownership of the 529 determines how it is counted by colleges for financial aid both as sitting funds and when it is used. A student can be named as the beneficiary of a 529 and it would not count as said student’s or that student’s parents financial picture if none of those parties own the account. But when the funds are distributed to the student, it would count very heavily.
If there is a family member or friend you trust explicitly, you can have a 529 owned by them release the funds for that purpose junior year which is when abroad is often done and that would not impact aid if the student is in a traditional trajectory, graduating the following year because that would be income for aid purposes two years later.
Yes, that might be a concern, especially if the child majors in a field where study abroad is difficult (such as engineering - due to class sequences.) But in that case, maybe the money could be used for a summer school abroad experience? Or a great post grad trip?
Thanks for all the advice. I wasn’t familiar with the 529 plans. Even if the money isn’t directly applicable for some of what I hope it is used for (travelling, exploring the culture, etc) then it could displace expenditures for which is is usable and free that up. I understand there are no guarantees; the child may not go to college, may go to college but not be interested in study abroad, the money may simply be used for something else. But I’m not trying to make something bullet-proof here, just provide the potential. As I’ve come to realize, the saying carries some truth – “If you want to make the gods laugh, tell them your plans.”
This may be too simple but why not set it aside in your own separate savings account? In case of death, ear mark it in your will as going to this kid. Or there may be ways to add her name and Payable on Death, but prevent her from accessing it now.
As for college study abroad, high school programs can be just as valid. And if she never wants to go away for this purpose, you need the Plan B. You have to figure IF you have any backup intentions.