I think a joint account would have to be reported on FAFSA.
@romanigypsyeyes,I really like the idea of calling Vanguard (or Fidelity or Schwab). They have all kinds of different accounts, all extremely low-cost, and they can give you the information you need to set this up and the pluses and minuses of each option.
And I, too, commend you and Mr. R. for your generosity!
I think it reports to FAFSA based on the SSN to which it reports to the IRA.
I think the child or other joint owner is still obligated to report the account as an asset on FAFSA, even if the child or other joint owner is not reporting interest income on his or her tax return. It’s not clear whether the child would report 50% of the value of the account or 100% of the value of the account. (I found an old thread that contains a robust debate on the topic.)
If the owner of the account is NOT the parent or child, this does NOT get reported on their FAFSA.
If, for example, grandparents have savings accounts and the accounts are in their names…this is not reported on the FAFSA. So @romanigypsyeyes you want to figure out what kind of account you want to set up…to benefit these kidlets.
There is a way for you to maintain the ownership and it would not affect financial aid.
For example, my mother had me as a joint holder on all of her bank accounts…the money was not mine, and she got the 1098 I statements. That money did not go on my kid’s FAFSA forms. It wasn’t my money. But in the event of her death, the accounts became mine. I’m not sure what that was called.
Of course, at any time, she could have cut me a check?
As always, CCers come through. We have retirement accounts through TIAA and Fidelity so I guess we should start there (again, not something I would’ve thought of!).
I have generated a list of questions/considerations based on this thread to bring to them.
I love these kiddos (almost as much?) as though they were my own. We already have basically everything we need so why not set them up to have life a little easier than we did?
You and your husband are wonderful, @romanigypsyeyes.
I agree that if you gift to the niblings as minors and have accounts titled that way, it automatically passes to them when they turn 18, whether they’re responsible at that time or not.
It is generally cleaner if you want maximum control to keep the funds in your and Mr R’s names, perhaps with the kiddos as beneficiaries in the unlikely event you guys predecease them before you’ve been able to gift the funds outright.
You are very thoughtful to try to help your beloved niblings while also keeping your future kid(s) in mind.
If the child is a joint owner, they own half the account even if their name and SSN is listed second. What is the purpose of having their name on the account but not being the owner? This would be reported on FAFSA. It is the child’s money, and in fact the child would have the right to all of the money in the account; joint owners have the right to spend the entire amount in the account.
Most banks/credit unions will not allow a single person to open a number of the same type of accounts, at least free (without fees) accounts. At my CU, I have one account and through that have a checking, savings and credit card (and any other loans when I need them). They are all the same account number, with different sub accounts. I’m also joint owner of my kids’ two accounts, but I couldn’t just open up two more accounts without their SSNs being on the accounts too. They get their statements being listed as first owner, but they can pay the taxes on income or I can, or we can split it. If the accounts are FDIC or NCUA protected, there is a limit to the number of accounts that are insured for one person; it’s 5 at one institution for the FDIC, $250k per account or up to $1.25M.
Again, I don’t think Romani is in danger of maxing out FDIC accounts. If Romani only wants her name on the account, then she doesn’t need multiple accounts (and probably can’t get them at the same institution). She’d control the one account and just do the accounting herself for what ‘belongs’ to each nephew or open accounts at different institutions, but that becomes a administration headache.
If the nephews’ names/SSN are on the accounts, they own the account too and it would be reported on FAFSA when the time comes. If they aren’t on the accounts, Romani owns them and she can do what she wants with them.
We are definitely not, nor will we ever be, in danger of maxing out any of these amounts lol
Don’t over complicate it. Open up an investment account for each kid in your name at a place like fidelity or schwab. Deposit funds and put them in a stock market index fund. They are very tax efficient. When the kids hit the age you want, transfer the account to them via gifts. They should be able to do it in kind, without selling and creating a capital gain. Check with the brokerage.
UTMA and UGMA age rules vary by state. I don’t think you get to pick between 18 and 21, the state rules define it, I believe.
I am a little surprised that people are favoring stock accounts over treasury bonds. You can buy them on-line, they accrue interest tax free, they are inflation protected and if used for education (and maybe first house, although that is a dusty memory so don’t trust it) when you cash them, the interest is not Federal taxes (your state may). And you can buy any amount from a token to a bunch!
I did it for my grand nephews in my mom’s name because my grandparents did it for us… I had about half the down payment on our first house, and they bought $25 bonds… added up over 30 years!
I’ve looked into this for my own nieces and nephews, and concluded that setting up 529 plans with myself as owner and them as the beneficiaries was the way to go, for a number of reasons.
First, the accounts are bankruptcy remote, and yet the owner retains full control.
Second, the owner can decide the timing of disbursement of the funds (unlike UTGMA).
Third, all investment returns are tax deferred, and if used for college down the road, tax free. Even with equity index funds, dividend distributions will be taxed to the owner as accrued. Relatedly, once the 529 is set up there are no ongoing paperwork or tax reporting issues.
Fourth, it is trivial to move 529 funds between beneficiary accounts owned by a single account owner, provided that the beneficiaries are family members as defined (first cousins, brothers/sisters, parents are all ok). This, in effect, allows rebalancing of account investments more often than the twice per year calendar limitation that the 529 plan rules would otherwise suggest.
Fifth, the 529 asset will not count against potential financial aid of the nieces and nephews, as it is not owned by any of them or their parents, when they are applying to college. Withdrawals will count as income to the student, though, so it’s probably best to make withdrawals only in junior or senior years.
Last, the 529 asset, if not used, can continue to accrue tax deferred for future grand-nieces and nephews.
The big downside, of course, is that if the funds are not used for college expenses, and withdrawn, the earnings will be taxed as ordinary income, rather than as capital gains. However, for relatively small amounts of money (less than $50K) I did not see this as a huge problem. If the kid does not go to college, at whatever point the original aunt and uncle wish, the account owner can simply be changed to the kid’s name. Any withdrawals would then be taxed at the kid’s marginal rate. Through judicious withdrawal strategy, there may be very little difference between income treatment (529) and investment gains treatment (as in most other strategies suggested such as gifting appreciated mutual funds when the donee is old enough), especially when kids are just starting out in life and jobs. There is no way to avoid the 10% penalty on earnings (gains), but I judged that a small price to pay in view of all the above benefits.
At the time when you want to transfer the 529 asset to the donee, it is easy to avoid any tax implications. Joint-gifting strategies (currently available for gifts up to $30K per year) will avoid any depletion of lifetime unified credit, and of course unless Mr. and Mrs. R. expect to have an estate north of $22 million, there are no practical costs except for the few minutes it takes to fill out Form 709 even for a larger one-time transfer.
Just something to think about, as I said we went through this process and decided to go with 529 plans for our three nieces and nephews (about $25K apiece initial funding).
EDIT - I just want to add that US Savings Bonds can accomplish some of the same goals, and Series I and E can even be converted to 529 plans or used to pay college expenses tax free (subject to income limitations of around $150K though I think), but (1) interest rates are very low, with basically nothing above inflation available any more, and (2) to the extent they are owned by the donee - and are disclosed on FAFSA/CSS Profile - they will be available when calculating financial need/aid.
Many credit unions allow multiple sub accounts (Christmas, vacation, etc.) kind of an electronic version of the envelop system for managing a budget. At least one of my CUs doesn’t put a limit on the number of sub accounts.
I’d also vote for hitting up TIAA and Fidelity for advice since you already have accounts there.
Even though the OP was not interested in 529 accounts because she wasn’t sure the recipient would need the money for higher education, I agree with post #34 that these accounts should still be considered. The education funded can included vo-tech programs and don’t have to be used right after high school graduation.
Fidelity will allow you to designate any non-retirement account as a Transfer on Death (TOD) account, naming your niece/nephew as beneficiary. In this type of arrangement, ownership of the account automatically passes to the named beneficiary upon your death, but until your death, you are the sole owner of the account—so the kiddo isn’t responsible for taxes on earnings and doesn’t need to report it on FAFSA, nor does the kid have access to the funds until you say so. As owner of the account, you have the sole power to take money out of the account and gift it to the beneficiary (or whomever you please) in a lump sum or in multiple installments, as you please. Your sole control allows you to decide when it’s appropriate for said niece/nephew to actually get the money. You think they’re not responsible enough at 18 or 21? No problem, you just hold it back until you think they’re ready. You think one of the kids will never be ready to handle the money responsibly? No problem, you can designate a new beneficiary, or close the account and redistribute the proceeds to other accounts, or keep it for yourself. They need it for college? No problem, you just gift it to them as needed. Since it’s a gift, it’s not taxable to them as income, and it shouldn’t affect their eligibility for need-based FA as long as you don’t gift it to them too early so that it’s sitting around in their savings account and thus counts as an asset at FAFSA reporting time.
So why bother with the TOD designation, as opposed to just keeping the money in an account in your name? Well, for starters, the TOD designation really means something. Hopefully you’ll never need the TOD feature, but you can’t be certain—you could be hit by a truck, but at least you’ll die knowing you left something for the kiddos. But beyond that, I think having the kid’s name on the account, even if only as TOD beneficiary, is helpful from a “mental accounting” standpoint, keeping it clear at all times how much you’ve set aside for each kid, and perhaps reducing the temptation to tap into those funds when you’re in a tight squeeze—though of course you’re fully entitled to do so if you deem it necessary.
It’s because these are young kids with long time horizons. You can make them very wealthy by putting a little in and letting it compound via the stock market. Treasuries are for old people. 
@romanigypsyeyes, FAFSA-only schools won’t ask about funds held in your name for siblings. OTOH, there were a couple of non-FAFSA schools that specifically asked if other family members were going to offer support during college. Not that we had that issue, but it was noteworthy to me at the time when I was putting together FA info.