Saving for college: Completing 529 paperwork

Every physician I know hates paperwork, especially the confusing, complicated kind. And as you might have guessed, saving for college involves some paperwork, too. Before I began writing this series, I thought it was easy to complete the paperwork to open and fund a 529 college savings plan. It seems thought that doing and teaching are two different things. Here's what you need to do to enroll in your 529 account.

  1. Pick your state. This was the subject of my last post in this series, but here's a quick resource to help you find 529 plans in your state.
  2. Pick your plan. In your state, there may be more than one plan, usually one broker-sold, and one direct-sold. Direct-sold plans are commission-free and help you keep more of what you earn.
  3. Make contact. Your plan will have a "provider" which is usually a mutual fund company. Using the resources at mentioned above, you can get their phone number or web address.
  4. Request the paperwork. Here's where things begin to get tricky. Usually there are several forms, and seldom are they written in a way that makes sense to anyone other than a financial advisor. If you're the least bit confused, call the company. They all have staff that are trained to help you and they will gladly walk you through the form, line-by-line if necessary.

Those were the easy parts. Now, the tough decisions. There are at least three parties to every 529 college savings plan:

  • the "owner": This is you, your spouse, or maybe a trust (way beyond the scope of this post). It's the person who has the legal title to the money.
  • the "successor owner": This is the person who gets legal title when the owner dies. In the world of IRA's, this would be called "the beneficiary" but not so in the world of 529's.
  • the "beneficiary": This is NOT the person who gets the money when the owner dies. Rather, this is the person who will benefit from the money: your student. The beneficiary is unable to get the money at any point UNLESS you also name them as the successor owner and then you die (bummer).

So the real question becomes, "Who should be the owner?"

In most cases, I advise clients to name the non-physician spouse as the owner just to add an extra layer of protection to the asset (for malpractice creditors). Even better, this takes one more piece of paperwork out of the physician's life and that's a good thing.

In cases where I'm dealing with a two-physician family, I usually advise that the mother be the 529 college savings account owner. Psychologically, it usually works out better this way.

Once you have all your demographic information filled into the form, and you've named your key players, there's one last decision to make before you can mail the form with the check: how to invest.

The 529 custodian will NOT tell you how to invest, so I will share some best practices with you in my next post.