Advice needed - college savings (529), gift taxes, and other $$$ questions

[leightx]

We are about to inherit some money from a relative. It is not officially part of the estate (it was in a joint checking account with the executer of the estate, who would like for it to go towards our childrens' college education).

I am uneasy putting it in a 529 plan, because from my understanding these are some disadvantages: withdrawals must be used for education or they are taxed - if one of our kids doesn't go, there isn't anyone else in the family that we could transfer the money to; also using the money reduces financial aid eligibility.

Is there some other form of savings (mutual fund, CD, trust) that we could use that would be more flexible?

Also - what is the scoop on the uniform gifts to minors act - my understanding is that she would be able to gift them up to $11000 each - but what do we then do with that money? Put it in an account with their name? Put it in our account? Use to buy CD/ whatever???

I will definitely talk to a financial advisor, but I just needed some quick advice before I talked to the executer of the will. Thanks! :)

[RunnerKim]

I know there are others that are more knowledgeable and i'm sure they'll pipe in. With 529s there is actually a good amount of flexibility - it doesn't just have to be college - most post-secondary education (tech school etc) would qualify. I would think most people these days are going to need some kind of post high school training or education. It can be used for tuition and school-related costs (i.e., living expenses, books). I think technically 529s are in a parents name (my kids are in mine) so I don't think they're considered the student's assets when figuring out financial aid; but I could be wrong about that as I do have a seperate account for both kids. (I'm the one with the power to decide who eventually gets the money etc. I did not want an account that was in their control)

Another option is a Roth IRA - that can be used for a few things besides education; such as buying a house (and retirement of course).

I know there are limits on how much can be put in either a 529 or roth IRA (not sure how much the inheritence is). I think it's around $2000/yr per account.

Kim

Editing to add a link to this web site Saving for College (http://www.savingforcollege.com/) which has lots of good info about 529s including:

Guidance from the U.S. Department of Education says that your 529 savings account is treated as an asset of the parent or other account owner in determining eligibility for federal financial aid. This means that your expected contribution towards your child's college costs will include 5.6%, or less, of the value of your account for each academic year. This is much better than the 35% assessment against assets owned in your child's name or in a custodial account.

There's more about gifting and the allowable amount (much higher than the $2000/year that I was thinking) so read through the FAQ there if you're re-thinking the 529s.

[tbb113]

My father gave the boys money when they were born under the UGTMA. We bought bonds for my older son and opened a mutual fund account for my second son. Both are targeted to be $25,000 at maturity (from a $5000 gift).