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Message
529 Plan: Tax Implications?
Posted on 7/14/11 at 12:58 pm
Posted on 7/14/11 at 12:58 pm
I plan on opening a state-sponsored 529 plan in September, funded primarily by my son's grandmother who lives in another state. She wants to send me a check for $10k to open the account with and send another $10k next year.
Will there be any tax implications for me by accepting this money for this purpose?
Will there be any tax implications for me by accepting this money for this purpose?
3
Posted on 7/14/11 at 1:13 pm to shutterspeed
Are you claiming the deduction?
Posted on 7/14/11 at 1:17 pm to shutterspeed
There is $13k per year gifting limitation so the $10k is within the acceptable range of a tax free gift.
She can actually make a three year gift up front of $36,000 to allow for an earlier investment of the principal. She must survive those full three years though.
There is no deduction for contributing to a 529 plan. The principal grows tax free until distribution, assuming the funds are distributed for qualifying expenses.
She can actually make a three year gift up front of $36,000 to allow for an earlier investment of the principal. She must survive those full three years though.
There is no deduction for contributing to a 529 plan. The principal grows tax free until distribution, assuming the funds are distributed for qualifying expenses.
This post was edited on 7/14/11 at 1:20 pm
Posted on 7/14/11 at 1:31 pm to LSUAfro
quote:
Are you claiming the deduction?
No. But could this be considered income for me?
Posted on 7/14/11 at 1:31 pm to LSUTexan78
quote:
She can actually make a three year gift up front of $36,000 to allow for an earlier investment of the principal. She must survive those full three years though.
Interesting. I'll have to look into that.
Posted on 7/14/11 at 1:39 pm to shutterspeed
If grandma is ms. moneybags, she can gift tax free $36k up front to you and your son (assuming she survives the full three years). It's a commonly used method to reduce the size of estates. Put the 72k in his 529 plan. You will want to file a Form 709 to record granny's gifts. Everyone has a $5M unified credit for gifting assets from their estate.
Posted on 7/14/11 at 1:40 pm to shutterspeed
quote:
No. But could this be considered income for me?
Not if it is gifted, but the reason I ask is that I was under the impression that some states allow for a partial deduction. I haven't looked at that in years, but I seem to remember that. Could be wrong? There is actually several things I would questioni here, but I'm over my head in memory loss and would have to go to google for some support.
Posted on 7/14/11 at 1:50 pm to shutterspeed
I wouldn't think there are any tax implications for you. I guess you would be the one paying tax on the money if your son doesn't use the money for college when he's 18, though.
Posted on 7/14/11 at 1:54 pm to Boh
quote:
I guess you would be the one paying tax on the money if your son doesn't use the money for college when he's 18, though.
I wasn't aware of this stipulation. The money HAS to be drawn down at 18?
Posted on 7/14/11 at 1:55 pm to LSUTexan78
quote:
If grandma is ms. moneybags, she can gift tax free $36k up front to you and your son (assuming she survives the full three years).
Heh. No moneybags. She just has to begin making withdrawals from her retirement account every year. I'm sure it's far less than $36k.
Posted on 7/14/11 at 1:56 pm to shutterspeed
quote:
I wasn't aware of this stipulation. The money HAS to be drawn down at 18?
I personally don't have experience with these plans, but from what I have read and heard, if the money isn't spend for college, tax must be paid by the "owner" of the account. Not sure if it's mandatory that the money be withdrawn at age of majority, though.
Posted on 7/14/11 at 1:59 pm to shutterspeed
You do not have to withdrawal the funds when your kid turns 18. If he decides that we wants to join the peace corps and skip college, you can change the beneficiary to another qualified family member or you can decide to take a non qualified withdrawl if you just want the cash. The earnings on the account will be subject to tax and an additional 10% federal tax.
Posted on 7/14/11 at 2:02 pm to LSUTexan78
quote:
The money HAS to be drawn down at 18?
No, it does not have to begin being withdrwn at 18. If the child gets a scholarship or does not go to college, the money may be transferred to the parents, brothers, sisters or even cousins to use.
ETA: LSUTexan78 beat me to it...what he said.
This post was edited on 7/14/11 at 2:04 pm
Posted on 7/14/11 at 2:04 pm to saint308
Could it be rolled into another savings plan (i.e. IRA?)
Posted on 7/14/11 at 2:04 pm to shutterspeed
And a quick google search tells me that there are deduction possibilities for funding a 529 in many states. Might want to check in to that.
If you are gifted 10k and then claim a deduction for contributing to a 529 that would seem like a 'win-win'. Not sure if that's possible.
If you are gifted 10k and then claim a deduction for contributing to a 529 that would seem like a 'win-win'. Not sure if that's possible.
Posted on 7/14/11 at 2:05 pm to shutterspeed
quote:
Could it be rolled into another savings plan (i.e. IRA?)
no
eta: well not tax free.
This post was edited on 7/14/11 at 2:06 pm
Posted on 7/14/11 at 2:11 pm to shutterspeed
quote:
Could it be rolled into another savings plan (i.e. IRA?)
Afro is right. You can roll it into your IRA after you paid the taxes on the earnings & the withdrawal penalty. There are obviously adjusted gross income restrictions on IRA contributions as well. I believe $165k agi limit on a roth ira contribution for a jointly filing couple.
Posted on 7/14/11 at 2:15 pm to LSUAfro
quote:
If you are gifted 10k and then claim a deduction for contributing to a 529 that would seem like a 'win-win'. Not sure if that's possible.
Seems like that would be an awesome deal for me!
Posted on 7/14/11 at 2:21 pm to shutterspeed
quote:
Seems like that would be an awesome deal for me!
Such a deduction doesn't exist for federal income taxes or in Texas. I cannot speak for other states though but I have my doubts b/c the plan is structured to allow for tax free growth of invested principal. That would be an amazing plan if you could deduct the initial investment and then also have tax free earnings.
Posted on 7/14/11 at 2:22 pm to LSUTexan78
The LA start program does allow for state deductions. I think the amount is up to $2400 per person or $4800 per couple.
This post was edited on 7/14/11 at 2:23 pm
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