529 vs UGMA/UTMA

[alloykat]

529 vs UGMA/UTMA: Assuming there will be no financial aid and that enrollment/maintenence/transaction expenses/etc for both are more or less equivalent.
Living in CA, I have no tax benefit with a 529 plan. 529 must be used for college expenses and grows tax deferred and is withdrawn tax free. The penalty is 10% to cash out if not used for college but you can argue that the return over the years may make up for the penalty. It is also not included in the value of your gross estate.

With the UGMA/UTMA, the child inherits it at a certain age, no penalty if not used for college, and the first $2100 in earnings is taxed at the child's tax rate but anything beyond that is at the parent's marginal rate. UGMA is part of the value of estate.

QUESTION: My husband is a European national so our child with dual citizenship may attend college in Europe for free if he/she chooses (although politics can change there). Given that we don't know if college will be free in 20 years for all children in the US or whether my child will definitely go to college, would it make the most sense to start with just an UGMA/UTMA this year and hold off on a 529 until down the line or am I am missing something? Given all the uncertainty in life, doesn't the UGMA make more sensate least INITIALLY? This is what my parents did for both me and my sister, but 529 was not around in those days.

[Kamban]

No right answer since you live in California that does not allow state Income tax deduction.

I did a lump sum 529 for my daughter a year after she was born. Took it as gift over a period of 5 years. That money should help her for undergrad or medical / professional school. Maybe both if she goes for low cost schools.

Started UGMA only last year. Planning to put in $28K each year (wife and I at $14K each).

Schools in Europe are starting to charge fees, though much less that USA. But from my experience with friends whose spouses are European ( mainly British) and the children are dual citizens, all went to schools in USA. So unless the whole family moves there, plan on the child going there for a semester or two max, rather than 4 years.

[jfoxcpacfp]

The UGMA will become the child's property at between ages 18 and 21 to do with what s/he pleases.

You are correct that CA d/n have a state income tax deduction or credit for 529 contributions, though.

I do agree with Kamban that it is unlikely your child will get a full education in Europe just because it will save you some money.

[alloykat]

Thanks!