Saving money for other people

[Rockatansky]

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Thanks Tom.

The more I read about the 529 savings accounts, the better they sound. It's the (almost) perfect solution for this situation.

It looks like we can retain control of the asset even after Joey turns 18. The withdrawls can only be used for college without penalty and the account can be transferred to another family member (including cousins) if Joey doesn't go to college or something. You can even set on up for yourself if you want to get that PhD.

And it doesn't have the income limits that some other savings plans have (the Coverdell ESA is only for people with incomes lower than $110,000/$220,000 if married). And the 529 doesn't have the contribution caps that other plans have. And it remains our asset, not Joey's, so he'll still be eligible for financial aid. This is awesome!

Downsides:
Contributions are not tax deductible (federal). They are only deductible for state taxes, and since we live in NV without state income tax, no need for a state tax deduction.

Transferring ownership to a cousin may not be possible after 2010, well before we'll know if Joey is going to college (he'll be 11). So, if something happens and Joey doesn't go to college, and they haven't extended the cousin transfer allowance, we would have to remove the money at a 10% penalty in order to give it to our children.

Anyway, still sounds like the way to go.
Thanks again.

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So what exactly is the advantage of placing the money into a 529 rather than investing it in your own name and then paying for his tuition when/if he attends college?