Soon to be New Parent Finance Advice Thread?

Soon to be New Parent Finance Advice Thread?


But then the child owns the account which is slightly worse for FAFSA calculations than if parents do when it comes to asset calculations (no a huge deal likely if you’re earning more than $220k since you won’t qualify for much need-based aid anyway).

But more importantly, it also prevents you from ever changing beneficiaries since the money comes from a custodian account for the child. Personally, I prefer to keep control of the money before and after they get to college.

So really IMO the only advantage of ESA is ability to invest $2k/yr per child in just about anything you want. For everything else, 529 plans are more flexible and IF you’re lucky to live in a state with a good one, they come with tax deductions that are hard to pass up. But there’s no reason to have only one of them particularly if your in-state 529 plan sucks.


I think your confusing who controls the account with who contributes to it. Presumably the parent controls it for benefit of the child in any event.


If the child is the contributor, until they are 18, parents act as custodians for the child’s account. It’s basically a fiduciary duty. Ownership becomes the child in full at 18 in any case.

But before that, it should prevents the parents from doing any kind of beneficiary change since it’d be very hard to claim that you’re acting in the child’s own best interest by removing them as beneficiary for the account the child contributed to. So unless you’re willing to break fiduciary duty to your child, the only legal control parents have in case of ESA where the contributor is the child, is what investment choices (subject to prudent man rules) are made for the benefit of the child, not beneficiary designation.

By changing beneficiary, you’d effectively be spending the child’s money for something other than their benefit leaving you liable for being sued by the adult child. Case law has tons of example of this happening. Not worth the risk IMO.


Well, I guess that depends on the kinds of kids you raise and whether they want to hassle you over trying to save for their college education. I mean, normally the money was a gift the money to the kid in the first place, that they then put into the ESA if you want to go that way. If they/you want to move it to a sibling when this one isn’t going to college or doesn’t need it all, I’m not sure that’s a bad thing. Your family may vary…


Will it be a problem in your family? Most likely not. Especially if you’re fair to the kid who elects to not go to college and compensate them appropriately for it. But legally, it’s the risk associated with making the child the contributor vs. having it be the parents. And it’s been tried many times. Parents rolling over an ESA with contributor child into a 529 plan was even found breaking fiduciary duty of custodianship because the conversion only had potential downsides for the contributor child.

So my advice if you fund a child contributor ESA because of income limits and they end up not needing the money for college, would be to wait until the child owning the ESA is over 18, then have them do a rollover to a 529 plan in which the beneficiary is their sibling. No legal issues and the result is almost the same for the kid who goes to college. (almost because adult child controls the 529 plan, not the parents, and could change their mind to keep the 529 plan for their own kids instead)


This post was flagged by the community and is temporarily hidden.


Interesting post from someone who just joined. :face_with_raised_eyebrow:

I notice you posted this in another topic, word for word. Looks like spam to me.


Hey there, apologies, not meant to spam anyone just following on from the comments to people that were discussing trade costs on kids custodial accounts and other investment options.

I’d love to help if anyone has any questions, not wanting to spam at all. My dad taught me investing as a child, it taught me a lot and has helped carry me forward. Most parents don’t teach kids enough to build financial independence and we hope to solve for that with Loved. Additionally, with free investing we avoid the high fees on low balances where returns would otherwise be eaten up.

If anyone has questions I can help answer on any topic let me know.



(Yes, this is a complete sentence.)