Whose name should a 529 plan be in for tax benefits?

This makes sense, but what about grandparents? My parents want to contribute to my kids' college funds. Should they open separate 529s or contribute to ones I own?

For grandparents, it's usually better if they contribute to your parent-owned 529 plan rather than opening their own. When grandparents own a 529, distributions were traditionally counted as student income on the FAFSA, reducing aid eligibility by up to 50% of the distribution amount. However, the FAFSA rules are changing so this will no longer be the case in the near future. If your parents insist on maintaining control, they could open their own 529s, but they might consider waiting until the last two years of college to make distributions, after the final FAFSA has been filed. Another option is for your parents to simply gift money to you, and you can contribute it to the 529 plans you own.

Does this actually work for state-specific tax questions? Like does it know the differences between how NY handles 529 contributions versus like California or Texas?

I've seen so many of these AI tax tools lately. Do they actually give legitimate advice that you can rely on? What happens if you get audited and the IRS says something different?

Yes, it absolutely handles state-specific questions and knows the differences between states. I was actually comparing the NY vs Arizona benefits since we were considering moving, and it broke down exactly how the deduction limits and rules differ. It even pointed out that in NY, each spouse can deduct up to $5,000 in contributions annually. As for reliability, everything is sourced directly from official tax code and documented IRS guidance. You get citations for every answer so you can verify it yourself. If you ever got audited, you'd have the exact reference to the tax code that supports your position. It's way more thorough than the conflicting advice I was getting from people.

Wait, how does this work? Does it just call the IRS for you or something? I don't understand how a service could get you through when the hold times are so ridiculous.

Yeah right. Nothing can get you through to the IRS faster. They're notoriously understaffed and I've literally waited 4+ hours multiple times. I'll believe it when I see it.

It uses a technology that holds your place in line and calls you when an IRS agent picks up. Basically, their system keeps dialing repeatedly using the optimal calling patterns (like early morning) and when it finally connects, it calls your phone and connects you directly to the agent who's on the line. So instead of you personally sitting on hold for hours, their system does the waiting for you. It absolutely works. I was skeptical at first too, but when you've been trying to get an answer for weeks and nothing else is working, it's worth a shot. The IRS agent I spoke with was actually super helpful once I finally got through to a human.

Thanks for bringing this up! How do the tax benefits compare between UGMA/UTMA accounts and a 529? I'm pretty confident my kids will attend college, but I like having flexibility.

The tax treatment is completely different. With a 529, your earnings grow tax-free and withdrawals for education are tax-free - it's a much better tax advantage if you know the money will be used for education. With UGMA/UTMA accounts, you get the "kiddie tax" benefit where a portion of the investment income is taxed at the child's (typically lower) tax rate. But once that income exceeds about $2,300 (in 2023), the excess is taxed at the parent's rate. And there's no tax-free withdrawal feature - when they take money out, any earnings are subject to capital gains tax.

You can change account ownership in most states, but there are some restrictions. In my state (Virginia), I changed my daughter's 529 ownership to her grandparents when they retired to a higher-tax state that offered better deductions. But some states don't allow ownership transfers or treat it as a new contribution. Call your specific 529 plan administrator to check their rules.

Thanks for the info! I'll call my state's 529 administrator tomorrow. I'm in Ohio and my son is in Pennsylvania, so I'll need to figure out which state's plan makes more sense now.