NY 529 Plan - Contribution Limit Exceeded!

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

NY 529 Plan - Contribution Limit Exceeded!

Postby hsingh » Thu Dec 27, 2012 1:17 pm

I opened a 529 in NY for my daughter in 2012 and funded it with $27,000 from my checking account spread over several months to dollar cost average, basically going $1,000 in excess of the joint gift-tax exempt amount.

Ideally, and in hindsight, I would have liked to stay at $26,000 and claimed it as a joint amount contributed by both me and my wife. I am now trying to figure out what is the best course of action for me and my wife to minimize tax consequences and paperwork?

Keeping in mind that NY State allows for state tax exemption on $10,000 for joint filers, I want to optimize my next steps and am considering the following options:

- Should I add another $23,000 to my account with in 2012 so that when I file form 709, there is a total of $50,000 being spread over 5 years, thus allowing me to take the $10,000 state tax deduction for 2012?

- Or should I not make any additional contributions and claim on form 709 that the $27,000 contributions were made just by me? That would result in $5,400 amortization per year as an individual contributor and I can top it up each year with additional $7,600 to stay at $13,000 limit for each of the 5 years. But I imagine that I wont be able to get the full $10,000 NY state tax exemption in this scenario. I question whether I can even make such an election considering I file joint taxes with my spouse? And if so, are there any benefits to this strategy other than not having to contribute $23,000 in the next 2 days?

And above all, are there other ideas you have that I should consider? Thanks in advance to anyone who takes the time to reply and Happy Holidays!
hsingh
 
Posts: 8
Joined: Thu Dec 27, 2012 1:11 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby Grt2bOutdoors » Thu Dec 27, 2012 3:18 pm

You only exceeded the joint contribution amount by $1,000 for 2012. The current limits are $13K per individual, a married couple can therefore contribute $26,000 for 2012. This should not prevent you from claiming the $10K NYS tax deduction for 2012. In 2013, the maximum contribution limit increases to $14,000 per individual giver. If you choose to do so, you can contribute the 23,000 you offered and make the five year forward averaging $10K per year, though I'm not sure how NYS will view that in the next 4 years for state tax return filings? Have you tried calling the NYS department of taxation and finance to see how they will view it?
"Luck is not a strategy" Asking Portfolio Questions
Grt2bOutdoors
 
Posts: 10957
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby hsingh » Thu Dec 27, 2012 4:05 pm

Thanks for the reply. However, I am still looking for advise on how best to report the $1,000 excess.
hsingh
 
Posts: 8
Joined: Thu Dec 27, 2012 1:11 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby sscritic » Thu Dec 27, 2012 4:30 pm

hsingh wrote:- Or should I not make any additional contributions and claim on form 709 that the $27,000 contributions were made just by me? ...
And above all, are there other ideas you have that I should consider? Thanks in advance to anyone who takes the time to reply and Happy Holidays!

Split the gift with your wife for this year. That's $13,500 each. File your 709 (quiz: can you file only one or do you each have to file?).

When you die in 40 years you will have $500 less each of lifetime exemption. Or something like that - what you will actually have less of is the lifetime credit, by the amount of the tax on $500 of taxable gifts. Taxable gifts under $10,000 are taxed at 18%,* so you will lose $90 of credit against what your estate will owe upon your eventual demise, as will your wife.

This preserves your right to make a new 5 year gift to the 529 next year ($140,000 between the two of you).

I am not a tax attorney, so don't believe anything I write unless you follow up and read for yourself. Note that even if I were a tax attorney I would have to say that I was not your attorney, yada yada yada ... same stuff.

* 2011 law. The forms aren't out yet for 2012, and I don't have the time to look up this year's rate.
sscritic
 
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby livesoft » Thu Dec 27, 2012 4:47 pm

call up the custodian. Tell them you overcontributed. Ask them what to do. Report back on this thread if they were helpful or not.
This signature message sponsored by LadyGeek.
livesoft
 
Posts: 35216
Joined: Thu Mar 01, 2007 8:00 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby hsingh » Thu Dec 27, 2012 4:56 pm

livesoft wrote:call up the custodian. Tell them you overcontributed. Ask them what to do. Report back on this thread if they were helpful or not.


Already tried that. Plan wasn't helpful in suggesting alternatives... simply to check with tax adviser.
hsingh
 
Posts: 8
Joined: Thu Dec 27, 2012 1:11 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby hsingh » Thu Dec 27, 2012 5:09 pm

sscritic wrote:Split the gift with your wife for this year. That's $13,500 each. File your 709 (quiz: can you file only one or do you each have to file?).


This seems to be the practical option... thanks for your advise. However, please let me know if we have to file one or two 709 forms considering we'll be filing jointly.

Any additional insight as to how I should fill the form 709 would be very helpful. I looked at the form at it seems like I'll need to fill out just schedule A, Part 1 but wasn't sure what values to use if we go for the gift-splitting option (which I assume we should be doing).
hsingh
 
Posts: 8
Joined: Thu Dec 27, 2012 1:11 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby livesoft » Thu Dec 27, 2012 5:55 pm

hsingh wrote:
livesoft wrote:call up the custodian. Tell them you overcontributed. Ask them what to do. Report back on this thread if they were helpful or not.


Already tried that. Plan wasn't helpful in suggesting alternatives... simply to check with tax adviser.

Thanks for the feedback. I overcontributed to an HSA. Perhaps surprisingly, the folks were very helpful when I called them about it.
This signature message sponsored by LadyGeek.
livesoft
 
Posts: 35216
Joined: Thu Mar 01, 2007 8:00 pm

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby sscritic » Thu Dec 27, 2012 6:08 pm

hsingh wrote:
sscritic wrote:Split the gift with your wife for this year. That's $13,500 each. File your 709 (quiz: can you file only one or do you each have to file?).

This seems to be the practical option... thanks for your advise. However, please let me know if we have to file one or two 709 forms considering we'll be filing jointly.

Any additional insight as to how I should fill the form 709 would be very helpful. I looked at the form at it seems like I'll need to fill out just schedule A, Part 1 but wasn't sure what values to use if we go for the gift-splitting option (which I assume we should be doing).

You can't file a joint gift tax return.
A husband and wife may not file a joint gift tax return.
page 1 of the instructions

I asked you my quiz question to prompt you to look at the instructions. I am glad you looked at the form; now look at the instructions along with the form. The question remains: must you file two returns for your two gifts?

That is actually two questions depending on the circumstances:
1) Your wife and you each give $13,500.
2) You gave $27,000.

You wrote that you gave $27,000, so I believed you. I guess I need to ask you one other question: what is gift-splitting and when does it apply? This is multiple choice, answer 1) or 2) (as above).

I am not trying to give you a hard time, but I am encouraging you to learn by reading the instructions. Some parts are really hard and have me stumped, but the basics are pretty straightforward.
sscritic
 
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby jon-nyc » Fri Dec 28, 2012 5:53 am

sscritic is right, file the 509. No big deal.
jon-nyc
 
Posts: 909
Joined: Sun Nov 15, 2009 9:02 am
Location: New York

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby vpbirdinator » Mon Dec 31, 2012 1:42 pm

You're allowed to go over $13K, you just can't count the overage in your gift-tax exclusion.

You could spread the $1K overage over five years with that 709 form, then do another lump sum contribution in 2013 that you also spread out over five years (and note in another 709 form). That would let you claim the $5K state tax deduction in 2013 as well.
Of the 9,000 or 10,000 mutual funds in the US, a mere several dozen merit the consideration of thoughtful investors -- David Swensen.
vpbirdinator
 
Posts: 72
Joined: Wed Jul 30, 2008 2:14 pm
Location: New York, NY

Re: NY 529 Plan - Contribution Limit Exceeded!

Postby Ranger » Mon Dec 31, 2012 3:07 pm

hsingh wrote:I opened a 529 in NY for my daughter in 2012 and funded it with $27,000 from my checking account spread over several months to dollar cost average, basically going $1,000 in excess of the joint gift-tax exempt amount.

Ideally, and in hindsight, I would have liked to stay at $26,000 and claimed it as a joint amount contributed by both me and my wife. I am now trying to figure out what is the best course of action for me and my wife to minimize tax consequences and paperwork?



Actually you are allowed to contribute up to $65,000 per person or $130,000 per couple for a single student in single year with out incurring gift taxes as long as you don't contribute for next 5 years. In my opinion you don't have to do anything.

https://uii.nysaves.s.upromise.com/cont ... lance.html

https://investor.vanguard.com/what-we-o ... e/overview and then click "Learn the ABC's of 529"

Edit: added a link
User avatar
Ranger
 
Posts: 446
Joined: Tue Feb 20, 2007 10:27 pm
Location: Wolverine Nation


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: asif408, Bacchus01, itstoomuch, Morik, ny_rn, Saltwater, slbnoob, TwoByFour, TxAg, WalterMitty and 118 guests