23
That's a really nice thing that you're planning to do for your niece and nephew, and it is possible to do!
You do need to provide a social security number for the beneficiary of the 529 plan, so to name your niece and nephew as beneficiaries, you will need to get their social security numbers. If you can get these without tipping off the parents, great! ...
22
Many states have 529 plans that allow you to name yourself as the beneficiary, and you can later change the beneficiary to a qualified family member without tax implications. Regardless of state, nieces and nephews count as qualified family members and the generation-skipping transfer tax only applies when the new beneficiary is two or more generations below ...
21
I think you are misunderstanding how a 529 plan works. Contributions to a 529 plan are not tax deductible on your federal return. The money you put in there is after tax. The tax advantage comes as the account grows. The earnings are not taxed, as long as you spend the money on the right things (education).
If you were to contribute money to the account and ...
12
A 529 has a custodian and beneficiary. If, say, my Mom is custodian and my daughter the beneficiary, neither my daughter, my wife, nor I can access this account. In fact, if my daughter chooses not to attend college, Mom can change beneficiaries.
So, a 529 is ideal for what you have described.
By the way, your wife may have broken the law. Money in your ...
11
I'll stipulate that this is possible. I will however suggest that it is not a good idea, for a few reasons.
First and foremost, saving for college is a serious thing and it has a major impact on the child's, and their parents', lives. The child will likely make choices with their life based on, among other things, how much money they expect to have saved ...
10
Can I not use a Traditional IRA for college savings as well?
Not without tax and early withdrawal penalties. Roths can be used for education to avoid the 10% withdrawal penalty, but since the money is all after-tax, there could be no tax due (unlike a Traditional IRA).
What is the common element between a 529 and a Roth IRA that doesn't exist in a ...
7
As far as I know (and I have looked into this due to my own IRA woes) the only ways to transfer ownership of a 401(k) are:
cash it out and pay any applicable tax and penalties;
to the named beneficiary by dying; or
to ones spouse as part of a divorce settlement.
6
Yes, you can. You're thinking of a custodial 529, or a 529 plan under the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act.
It refers to account in a 529 plan funded with money already owned by your minor child. Because minors generally cannot directly own an investment or bank account, an adult custodian must manage and use the funds ...
6
Yes, your plan makes sense for the reasons you cite. The 529 has limited investment choices, along with fees that are often higher than an exact ETF equivalent. A .5% annual expense, even just .4% higher than the ETF, still will cost you an average 4% over the 2 decades of savings.
You currently seems to be saving enough, but once your wife's income starts ...
6
No. But there are some states in which a state income tax deduction is offered only for in-state 529 plans.
Your child can go to any college regardless of 529 state.
6
If this is a tax-deferred account you shouldn't be getting 1099 at all unless you withdrew something from it.
Call the company and ask them why they sent it to you.
6
First, can I even roll any my profits into a 529 plan to avoid taxes.
No. 529 plans are not pre-tax (except for State taxes in certain States, where 529 contributions are deductible. Ohio is such a State, with certain conditions). For Federal taxes - funding a 529 with yourself as a beneficiary doesn't change a thing on your taxes.
Is there any special ...
6
Yes, you can use a 529 plan for grad school. And yes you can use it for your education. But make sure the school you want to attend is an eligible institution, check with the US Department of Education
There are a few things to keep in mind.
Most 529 accounts exist for a decade or more before the student uses it. If you plan on using the funds in the next ...
6
Your friend would have only been liable for a tax penalty if he withdrew more 529 money than he reported for qualified expenses.
That said, if he took the distribution in his name, it triggers a 1099-Q report to the IRS in his name rather than his beneficiaries. This will likely be flagged by the IRS, since it looks like he withdrew the money, but didn't ...
6
Contributions to a 529 plan are not deductible at the federal level, the tax advantage is that earnings in a 529 are not taxed if used for qualified education expenses. So, there would be no point in contributing and withdrawing immediately unless your state happens to have a 529 deduction.
Iowa happens to be a state that does have a 529 plan deduction, if ...
5
529 Plans must be sponsored by a state. There are sometimes several plans sponsored by a state, but the trick is picking the plan with the lowest costs, just like any investment account.
Clark Howard has a nice guide and recommendations for picking 529 plans. If you live in a state on his honor roll, invest in that state plan for extra tax benefits. If ...
5
A 529 plan is set up in a specific beneficiary's name but the money can be rolled over or transferred into another 529 plan in the same beneficiary's name, or the beneficiary can be changed by the owner of the account. I mistakenly believed that the new beneficiary could be anyone else, but as mhoran_psprep has
pointed out in the comment below, the new ...
5
Nice idea, but you will have a potential problem. State lawmakers have already considered this option:
I looked at this site: Saving for college because it include info for on all the plans. For Illinois it discuses income tax recapture.
Effective January 1, 2007, rollovers from this plan to an out-of-state
program are included in Illinois taxable ...
5
Michigan's 529 plan offers a wide variety of investment options, ranging from a very conservative guaranteed investment option (currently earning 1.75% interest) to a variety of index-based funds, most of which are considered aggressive.
You said that you are unhappy with the 5% you have earned the past year, and that you thought you should be able to get ...
5
Both a Roth IRA and a 529 plan allow you to invest money that you do not have to pay taxes on upon withdrawal -- the money the investment makes can be used tax-free.
Traditional IRAs function in the reverse -- you don't pay taxes on the money you put in (presuming you're under the income limit), but you do pay taxes on the money that you take out.
...
5
In your 529 example, you account for the 10% penalty, but not the tax on withdrawal. The gains, $190,290 are taxed, at ordinary (not cap gain) rate. Since that's on top of your income, I'd assume 22%, at today's rates. $41,864. Canceling out the entire amount you show as extra on the 529 choice.
4
The biggest issue is determining how committed you are to this "niece". When setting up an account (529/prepaid tuition/Universal Gift to Minors/Coverdell/Roth) you are making a commitment that locks you into some provisions. They all have different amounts of control, and can impact taxes and financial aid.
The states involved can even be important. Some ...
4
To clarify, the IRS defines a qualified distribution is a distribution that's used to pay for a qualified expense (see p5). In the context of 529 plans, these are
Tuition and fees required to enroll at or attend an eligible educational institution
Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses ...
4
There are several variables to consider. Taxes, fees, returns.
Taxes come in two stages.
While adding money to the account you can save on state taxes, if the account is linked to your state. If you use an out of state 529 plan there is no tax savings. Keep in mind that other people (such as grandparents) can set aside money in the 529 plan. $1500 a year ...
4
For some states they give you a tax break when you make a deposit into the accounts.
The 11 year old is still 11 years away from college graduation, so the growth can be significant. The 15 year old will have most of their funds in safe investments to avoid a big drop just as the they need the money. many view the automatic adjustment in risk a benefit ...
4
Yes, you can use a 529 plan on yourself if you are using it for qualified educational expenses, such as tuition.
4
With a UTMA/UGMA account, the minor (child) is the legal owner of the account. Any income/proceeds from the account belong to the minor and at tax time the income goes on the minor’s tax return.*
Although the UTMA/UGMA account is owned by the minor, it is controlled by the custodian. When you set up the account, you name a custodian that has complete ...
3
You should probably talk to an estate attorney (a lawyer duly licensed in your State) and a licensed tax adviser (EA/CPA licensed in your State) about this, as this may become tricky. It depends greatly on how the trust is defined and who are the beneficiaries.
3
A 529 is typically "owned" by the parent with child as beneficiary.
If you are asking if the child can be the owner as well, sure. This means that at 18 (or 21) they can do what they wish with the money. When the parent stays owner, its not quite a completed gift, even though it was subject to gift tax limits each year.
To be clear, your child can be the ...
3
This is a partial answer.
Coverdell ESA must be withdrawn when the beneficiary turns 30. The 529 has no such age restriction. A decent comparison is at Coverdell Education Savings Accounts a wiki entry at the Bogleheads site.
To add another point, the Coverdell limit is $2000 per year deposit, the 529 is subject only to the rules of gift taxation, so a ...
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