[Shanelle]

What’s your opinion on switching out a 529 for my kids into a regular brokerage account. I’m trying to decide if to mitigate the risk of thinking that my kids may decide they don’t want to go to college and I want to be able to access the money to do anything I want to if they decide another route.

I’m looking for pros and cons to switching to regular brokerage instead of maintaining a 529 for the next 10 years.

I presently have 3 529 with kids that’s are 9, 7, 6.
Thnxs for any constructive advice.

[Kathy]

The brokerage account you will have to pay any capital gains. You can transfer money to a Roth from the 529. You are going to get burned either way on any financial aid.

I did both and a cd for mine. Lost a lot from the brokerage because of the taxes.

[Lori]

There’s no right answer. We have both for the same reason as you. Some of the things I’ve learned:

– You can set up the brokerage either in your name or as a custodial in their names.

The latter cannot be undone tho if you fear misuse of the funds, you could try and put it into a trust.

Once the kid is 18, the money in that custodial account is theirs to do what they want with.

– Both types of accounts pay capital gains tax upon sale and tho there is a little relief in the kiddie accounts (I think up to $2k in div/lt cap gains), then the taxes kick in at parents effective rates.

One of the challenges is a lot of parents are in their highest earning years and tax rates when kids are in college – so you could be looking at 20%+ (with NIIT) on the brokerage accounts in a worst case scenario.

– I’ve wondered if it might make sense to take out loans during that time (depending on rates) and let kids cash out once they’re dependent to pay off, but haven’t asked an accountant about it.

Either way, be sure to learn about tax loss harvesting and do that on an annual basis (and then rebuy once wash sale rules are clear) to mitigate some of that.

[Serena]

You can pay for any type of training program, not just college. Probably useful no matter what.

[Elie]

You now have the option of converting the 529 into a Roth IRA later which finally pushed me over the edge to open a 529

[Michael]

Several rules apply to transferring 529 to Roth. You should look them up.

[Pam]

We have brokerage accounts for the kids. I don’t know if it’s the right answer. They are in my name and the intent is to use the money for the kids one day – a car, wedding, house, etc (it won’t be that much money).

It’s not something I plan on turning over to them which is why their names aren’t on them.

I also have access to them in the event something happens and we need use the money.

We are opening a 529 for them in the next week too.

[Katelynn]

Have you considered a little into a 529 and UTMA? Direct deposit
Up to 35k in after so many years the 529 can be rolled into a Roth IRA for your kids.

[John]

playing a dangerous tax game. Worst case scenario is you lose 10% on the 529 if you use if to buy 1000 pairs of Crocs

[Bassel]

Generally the 529 is set up in parent’s name, with option of funding education for them or children, for exactly the reason you are considering.

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