Can I Save For Medical School With a 529 Account?

[astrife]

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[mpp]

Yes, a 529 account will work for any type of accredited higher education. However, you can't just put money into your parents name as this would be considered a gift. Any gift over $11,000 will be taxed.

You can put a one time $55,000 into a 529 account but that means you cannot put any more money into the account over the next 5 years as the limit is also $11,000 per year (and they allow 5 years advanced deposit). Otherwise, you will be taxed (which defeats the whole purpose of the 529 as the only advantage over any other investment is the tax free nature).

EFC's for medical school are not nearly as important as they are for undergrad since there are no federal grants for medical school and nearly every medical student will qualify for $38,500 per year in Federal Stafford loans regardless of what their EFC is.

It is probably best that you keep the money because as a student, your income is so low that you will likely not owe any tax. Giving it to your parents that have an income will only increase their tax burden unecessarily.

If you are talking a large amount of money (greater than $100,000) I would seek financial advice from a professional that will take your situation and tax advantages into account. A big discount broker like Schwab will happily help you without pushing you into commission-based investments.

 

[astrife]

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[mpp]

Some medical school have institutional need based aid based on EFC, but not all. Most always take into account your parents income/savings so it won't matter much in whose name the money is (and you'll have to get over the gift tax anyways to put the money in your parent's name). Regardless of whose name it is in if it is in a 529 you'll be expected to contribute all of it to education (if you don't you'll be penalized 10%). You can also look at it this way...if you use all of that money for your first two years, the you'll be poor and qualify for need-based aid the second two years. Or you can spend it slowly all four years and borrow. Either way I thing it would be wash.

A better option is to put some of the money toward a home or into retirement account, neither of which will be considered when calculating your EFC.

By the way, I did Peace Corps and I highly recommend it.

 

[astrife]

Some medical school have institutional need based aid based on EFC, but not all. Most always take into account your parents income/savings so it won't matter much in whose name the money is (and you'll have to get over the gift tax anyways to put the money in your parent's name). Regardless of whose name it is in if it is in a 529 you'll be expected to contribute all of it to education (if you don't you'll be penalized 10%). You can also look at it this way...if you use all of that money for your first two years, the you'll be poor and qualify for need-based aid the second two years. Or you can spend it slowly all four years and borrow. Either way I thing it would be wash.

A better option is to put some of the money toward a home or into retirement account, neither of which will be considered when calculating your EFC.

By the way, I did Peace Corps and I highly recommend it.

Well the money was "given" to me by my parents for my education down the line, so it really is already in their accounts as we have not decided the best course of action with the money yet. So I believe that negates the gift tax. Do medical schools expect all of a parents savings to go towards their kid's education or just a percentage of it (talking savings in general not 529's)? I would think the idea would be "you are expected to use some of your savings towards the education, as it is your kid, but some of it should still be yours at the end". This is how it is sort of dealt with in undergraduate FAFSA's as I believe 35% of a parent's assests are calculated into the EFC. Do medical schools operate in a different fashion and just expect the entirety of my parent's assests to be used for the education 100% each year?

If that's the case then you are probably right about putting it in an IRA or something.

 

[mpp]

Then it should stay in their name because if it changes hands it is subject to tax (everything above $11,000 that is). They can pay your education expenses with it (regardless of whether or not it is with a 529 plan) without it being taxable. But they cannot just give it to you.

No, medical schools don't expect any of your parent's savings to go towards their child's education costs. They may use your parents income and savings to determine who might be eligible for institutional aid which varies from school to school but they will not 'expect' them to pay down their savings.

In regards to an IRA contribution unless you have earned income (that is have filed a tax return with a gross adjusted income) you cannot contribute to a Roth-IRA. Your parents cannot just gift you your IRA contribution unless you have earned income that is at least equal to your contribution.