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in CA, I have no tax benefit with a 529 plan. 529 must be used for college expenses and grows tax deferred and is withdrawn tax free.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.
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in CA, I have no tax benefit with a 529 plan. 529 must be used for college expenses and grows tax deferred and is withdrawn tax free.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.
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