529s for Grandchildren that you don't have yet

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

529s for Grandchildren that you don't have yet

Postby Bacchus01 » Sat Mar 23, 2013 8:02 am

I've read a lot about people opening 529s for children they don't have yet.

Can you do the same for grandchildren you don't have yet?

I live in Wisconsin. Can I open them for grandchildren I don't have yet and still get the $3K tax deduction? I have 3 sons, 11, 7, and 4. I have opened 529s for those 3, plus my wife and I. This allows us to contribute $15K/year that is state-tax deductible. I plan to transfer beneficiaries from my wife and I to our kids as they need them for extra funds in college.

What would keep me from opening another 3-4 accounts for grandchildren I don't have yet, getting the tax advantages, and then transferring beneficiaries to my sons when they go to college?
Bacchus01
 
Posts: 401
Joined: Mon Dec 24, 2012 10:35 pm

Re: 529s for Grandchildren that you don't have yet

Postby sscritic » Sat Mar 23, 2013 8:14 am

Bacchus01 wrote:I've read a lot about people opening 529s for children they don't have yet.

And what did you find in your extensive reading?

Hint: Where are you going to get a fake social security card for the unborn? How do you get a fake date of birth for the unborn?
sscritic
 
Posts: 21863
Joined: Thu Sep 06, 2007 9:36 am

Re: 529s for Grandchildren that you don't have yet

Postby Bacchus01 » Sat Mar 23, 2013 8:19 am

sscritic wrote:
Bacchus01 wrote:I've read a lot about people opening 529s for children they don't have yet.

And what did you find in your extensive reading?

Hint: Where are you going to get a fake social security card for the unborn? How do you get a fake date of birth for the unborn?



I had the impression from reading that many people had done this.

It appears that plans don't allow this (per the rules you stated) so I'm curious how it was done, if done at all.
Last edited by Bacchus01 on Sat Mar 23, 2013 8:20 am, edited 1 time in total.
Bacchus01
 
Posts: 401
Joined: Mon Dec 24, 2012 10:35 pm

Re: 529s for Grandchildren that you don't have yet

Postby assumer » Sat Mar 23, 2013 8:20 am

We had some discussions on the gift tax and changing beneficiaries here recently: viewtopic.php?f=2&t=113006 which may be of interest to you.

You can probably open up 529's for other relatives right now, and then transfer the beneficiary to your grandchildren in the future. If you transfer beneficiaries to your son in the future, as far as I understand it, that is considered a one-time gift to him.

Remember, you can "backload" 5 years' worth of tax-free gifts for a 529. So if you accumulate up to $14,000 x 5 in a 529 you can transfer that 529 to another beneficiary with no gift tax, but then you can't gift that beneficiary any more money for the next 5 years.
assumer
 
Posts: 415
Joined: Sat Dec 22, 2012 12:11 am

Re: 529s for Grandchildren that you don't have yet

Postby RobInCT » Sat Mar 23, 2013 8:41 am

Deleted because I misread the question.
Last edited by RobInCT on Sat Mar 23, 2013 8:43 am, edited 1 time in total.
RobInCT
 
Posts: 271
Joined: Sun Dec 09, 2012 3:58 pm

Re: 529s for Grandchildren that you don't have yet

Postby NYBoglehead » Sat Mar 23, 2013 8:41 am

Not sure what your overall financial picture is either, but I would suggest that there is probably something better that can be done with this money. If you are putting 15k/yr towards college right now, you are going to build a sizable fund.

Assuming you already max out all tax-advantaged retirement space, I'd look into muni bonds or making accelerated payments on the mortgage if you find you have extra cash on the books.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 10:38 am

Re: 529s for Grandchildren that you don't have yet

Postby blevine » Sat Mar 23, 2013 9:04 am

I live in NY and in this state, there is a limit as to how much you can deposit and take as a state tax deduction.
$5k/year $10k/joint return.

I didn't look this up for you, assume you know your own state's rules (if not you should find out).

I am also not sure why you need to open multiple accts ?
Can't you just open one in your name, and later roll portions of it to a new account with beneficiary
of a kid once born ? One thing I don't need is more accounts/statements.
blevine
 
Posts: 997
Joined: Sat Feb 27, 2010 4:57 pm
Location: 192.168.1.2

Re: 529s for Grandchildren that you don't have yet

Postby reggiesimpson » Sat Mar 23, 2013 9:46 am

Different states have different rules so you should call the 529 that pertains to your state. You wont be able to open a plan for the unborn but you can plan for your grandchildren through your own children. Again, just call your states plan for more accurate answers.
reggiesimpson
 
Posts: 1265
Joined: Mon Dec 19, 2011 1:47 pm

Re: 529s for Grandchildren that you don't have yet

Postby 2stepsbehind » Sat Mar 23, 2013 9:58 am

Note that generation skipping taxes may apply.
2stepsbehind
 
Posts: 427
Joined: Wed Jun 20, 2007 11:03 am

Re: 529s for Grandchildren that you don't have yet

Postby HardKnocker » Sat Mar 23, 2013 10:02 am

Why not go a step farther and open 529s for your descendents in the 23rd century?
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
User avatar
HardKnocker
 
Posts: 1986
Joined: Mon Oct 06, 2008 12:55 pm
Location: New Jersey USA

Re: 529s for Grandchildren that you don't have yet

Postby DesertMan » Sat Mar 23, 2013 10:18 am

Why are you all making fun of Bacchus? A few thousand dollars socked away in a 529 that is in TSM could pay off a child's entire college bill in 30 years. It's called compound interest.

You can redesignate beneficiaries on a 529. I do not know what the restrictions are on how you do that, that is, if you can designate a grandchild once they are born.
DesertMan
 
Posts: 68
Joined: Tue Dec 07, 2010 1:54 pm

Re: 529s for Grandchildren that you don't have yet

Postby sscritic » Sat Mar 23, 2013 10:26 am

He said he had read a lot about opening accounts for the unborn. I asked him what he had found. He still hasn't quoted any article or even a post on bogleheads that tells you how to open an account for the unborn. I don't think it can be done, but maybe it can. Perhaps you can tell me how to do it.
sscritic
 
Posts: 21863
Joined: Thu Sep 06, 2007 9:36 am

Re: 529s for Grandchildren that you don't have yet

Postby Grt2bOutdoors » Sat Mar 23, 2013 10:32 am

Why does it have to be a 529 plan? Open a Roth, fully fund it, if you don't need the money in 30 years, you can withdraw tax free.
"Luck is not a strategy" Asking Portfolio Questions
Grt2bOutdoors
 
Posts: 9946
Joined: Thu Apr 05, 2007 9:20 pm
Location: New York

Re: 529s for Grandchildren that you don't have yet

Postby desertbandit442 » Sat Mar 23, 2013 10:41 am

Open one in your own name/SSN and then re-designate it when the grandchild is born.
User avatar
desertbandit442
 
Posts: 127
Joined: Mon Feb 20, 2012 9:41 am

Re: 529s for Grandchildren that you don't have yet

Postby assumer » Sat Mar 23, 2013 10:44 am

desertbandit442 wrote:Open one in your own name/SSN and then re-designate it when the grandchild is born.


Yup that's a good option, but you just have to be wary of gift tax considerations.
assumer
 
Posts: 415
Joined: Sat Dec 22, 2012 12:11 am

Re: 529s for Grandchildren that you don't have yet

Postby letsgobobby » Sat Mar 23, 2013 11:04 am

desertbandit442 wrote:Open one in your own name/SSN and then re-designate it when the grandchild is born.

OP has already opened in his name, and his wife. That's his dilemma. He needs a sixth person or seventh person and their SSN to pull this off.
letsgobobby
 
Posts: 6908
Joined: Fri Sep 18, 2009 2:10 am

Re: 529s for Grandchildren that you don't have yet

Postby sscritic » Sat Mar 23, 2013 11:11 am

If it were just about funding the grandchildren's education, he could just load up the five existing 529s to the maximum allowed, e.g., $400k each, and then not spend them down. Once the grandchild is born, change the beneficiary from the college grad to the new grandchild.

But that's not what the OP is really interested in. He may not care about his grandchildren at all, but we do know he cares about getting a tax deduction for this year.

Can I open them for grandchildren I don't have yet and still get the $3K tax deduction?

Concentrate your answers on the tax question and forget the grandchildren.
sscritic
 
Posts: 21863
Joined: Thu Sep 06, 2007 9:36 am

Re: 529s for Grandchildren that you don't have yet

Postby assumer » Sat Mar 23, 2013 11:12 am

So it really depends on the tax advantages to which the OP is referring. If it's the deduction, then yeah he/she likely couldn't contribute more in his/her own name. But if it's the tax deferred benefits of a 529, then the OP can put a lot in his/her own name (you can't "gift" yourself I believe) and possibly change beneficiaries for a portion of it.
assumer
 
Posts: 415
Joined: Sat Dec 22, 2012 12:11 am

Re: 529s for Grandchildren that you don't have yet

Postby sscritic » Sat Mar 23, 2013 11:17 am

Just think of the possibilities. Open 10 accounts for grandchildren not yet born. That's $30,000 in tax deductions. Later, change the beneficiaries from the unborn grandchildren to their "parents" (whatever the parent of an unborn person is). Since the change is going to a "family member" (if an unborn can have a family member) of a higher generation, you don't have to worry about gift taxes. How's that for a plan? :)
sscritic
 
Posts: 21863
Joined: Thu Sep 06, 2007 9:36 am

Re: 529s for Grandchildren that you don't have yet

Postby Bacchus01 » Sat Mar 23, 2013 12:39 pm

Thanks for all the help, and unhelp.

I think I was reading it wrong, but I sure appreciate the valuable comments.

After reading deeper, it appears people were opening in their name for an unborn, then transferring since you need a bdate and ssn to open.

I was hoping to continue funding my kids while taking tax deductions. I do Roth conversions already as I can't fund a Roth outright. I fund 5 529 accounts per year now. Max 401k and the rest is taxable.

Paying down mortgage when rate is 2.125% doesn't make sense.

But, I have my original question answered now, thanks.
Bacchus01
 
Posts: 401
Joined: Mon Dec 24, 2012 10:35 pm

Re: 529s for Grandchildren that you don't have yet

Postby ram » Sun Mar 24, 2013 2:52 pm

Bacchus,
I live in Wisconsin. I put $3000 each yr for my 2 kids , but do not have any accounts in my or wife's name.

I am looking for advice from you.

It appears that you are saving state taxes on 3000 x 5. Is that true. In that case I will start accounts in my and wife's name. The money in my kids 529 is not going to be enough and so we are putting additional monies in Vanguard (Neveda ) 529 for them.This simply leads to tax free growth without any tax deductions at this time.

Directing 6000 of this per year to my and wife's account will save about 7% x 6000 = 420 state tax.
Ram
User avatar
ram
 
Posts: 459
Joined: Tue Jan 01, 2008 11:47 pm
Location: Midwest

Re: 529s for Grandchildren that you don't have yet

Postby CedarFence » Sun Mar 24, 2013 4:55 pm

I pulled up the Wisconsin Plan Disclosure booklet.

"Eligible Beneficiary: Any U.S. citizen or resident alien with a valid Social Security number or taxpayer identification number."

"Member of the Family: A person related to the Beneficiary as follows: (1) a child or a descendant of a child; (2) a brother, sister, stepbrother or stepsister; (3) the father or mother, or an ancestor of either; (4) a stepfather or stepmother; (5) a son or daughter of a brother or sister; (6) a brother or sister of the father or mother; (7) a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law; (8) the spouse of any of the foregoing individuals or the spouse of the Beneficiary; or (9) a first cousin of the Beneficiary. For this purpose, a child includes a legally adopted child and a stepson or stepdaughter, and a brother or sister includes a half-brother or half-sister."

So, as long as they would give you their ss#, you could open it for a bunch of different people in your family and consolidate beneficiaries in the future.

Maybe not so fast?
"Changing Your Beneficiary. After you open an Account, you may change your Beneficiary to a Member of the Family of the former Beneficiary without adverse federal tax consequences. Otherwise, the change may be subject to federal income taxes. There also may be federal and Wisconsin gift, estate and generation skipping tax consequences of changing the Beneficiary. You should consult with a qualified advisor regarding the possible tax and legal consequences of changing the Beneficiary on your Account. To request a Beneficiary change, please complete the appropriate Plan form."
CedarFence
CedarFence
 
Posts: 4
Joined: Thu Feb 28, 2013 2:15 am

Re: 529s for Grandchildren that you don't have yet

Postby alisa4804 » Sun Mar 24, 2013 6:01 pm

I agree, it's not a dumb question. As others have suggested, you can start a 529 for another relative, such as your siblings or niece or nephew, if they will share their social security number. In some states you can designate a successor owner or something to that effect, for example, in case of your death, your brother is the owner of the accounts, and you could leave a note explaining your desire for the beneficiary to be changed to future grandchildren. There are a lot of "what ifs," and of course there is trust involved. Maybe this is a stretch, but OP is thinking ahead, and this is a generous move, if they decide to go ahead. That's what this boglehead forum is for, to seek feedback and advice - we are all learning. :happy
alisa4804
 
Posts: 242
Joined: Sun Jul 24, 2011 5:08 pm

Re: 529s for Grandchildren that you don't have yet

Postby Bacchus01 » Sun Mar 24, 2013 11:21 pm

ram wrote:Bacchus,
I live in Wisconsin. I put $3000 each yr for my 2 kids , but do not have any accounts in my or wife's name.

I am looking for advice from you.

It appears that you are saving state taxes on 3000 x 5. Is that true. In that case I will start accounts in my and wife's name. The money in my kids 529 is not going to be enough and so we are putting additional monies in Vanguard (Neveda ) 529 for them.This simply leads to tax free growth without any tax deductions at this time.

Directing 6000 of this per year to my and wife's account will save about 7% x 6000 = 420 state tax.


Yes, I have opened them for my wife and I and will move them to my kids when needed.

Also, since there is a 7-year spread between oldest and youngest, I intend to keep contributing on behalf of my oldest son even when he is out of college if the money is needed for my youngest.

Of course, who knows what the tax laws will look like then.
Bacchus01
 
Posts: 401
Joined: Mon Dec 24, 2012 10:35 pm

Re: 529s for Grandchildren that you don't have yet

Postby ram » Wed Apr 03, 2013 8:18 pm

Bacchus01 wrote:
ram wrote:Bacchus,
.


Yes, I have opened them for my wife and I and will move them to my kids when needed.

Also, since there is a 7-year spread between oldest and youngest, I intend to keep contributing on behalf of my oldest son even when he is out of college if the money is needed for my youngest.

Of course, who knows what the tax laws will look like then.


Thanks
Ram
User avatar
ram
 
Posts: 459
Joined: Tue Jan 01, 2008 11:47 pm
Location: Midwest

Re: 529s for Grandchildren that you don't have yet

Postby SimonJester » Thu Apr 04, 2013 12:11 pm

Just be aware that most of the 529 plans with a state tax deduction are subject to recapture of the deduction if the funds are not used for education. Also any non qualified withdraw from the plan is subject to income tax plus 10%.

I would fund for known children AFTER you fully fund your Roth IRA and fund your 401k to at least 15%.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
SimonJester
 
Posts: 431
Joined: Tue Aug 16, 2011 1:39 pm

Re: 529s for Grandchildren that you don't have yet

Postby Bacchus01 » Thu Apr 04, 2013 12:55 pm

SimonJester wrote:Just be aware that most of the 529 plans with a state tax deduction are subject to recapture of the deduction if the funds are not used for education. Also any non qualified withdraw from the plan is subject to income tax plus 10%.

I would fund for known children AFTER you fully fund your Roth IRA and fund your 401k to at least 15%.



I max out both (my max 401K capability is well below 15% though).
Bacchus01
 
Posts: 401
Joined: Mon Dec 24, 2012 10:35 pm

Re: 529s for Grandchildren that you don't have yet

Postby runnergirl » Thu Apr 04, 2013 1:04 pm

I don't know about laws in Wisconsin, but my family has 8 x 529 plans for a $2500 state tax deduction for each account (total of $20,000 a year). I have two children. I opened one for myself, my spouse, son, and daughter. My spouse opened one for himself, for me, son, and daughter. When the children reach college age, we will change the beneficiary to their names. There is no limit to the deduction. Fleetingly considered asking other family members for their SSN's, but really don't want to go there.
runnergirl
 
Posts: 131
Joined: Thu Nov 04, 2010 2:15 pm

Re: 529s for Grandchildren that you don't have yet

Postby kenyan » Thu Apr 04, 2013 1:13 pm

alisa4804 wrote:I agree, it's not a dumb question. As others have suggested, you can start a 529 for another relative, such as your siblings or niece or nephew, if they will share their social security number. In some states you can designate a successor owner or something to that effect, for example, in case of your death, your brother is the owner of the accounts, and you could leave a note explaining your desire for the beneficiary to be changed to future grandchildren. There are a lot of "what ifs," and of course there is trust involved. Maybe this is a stretch, but OP is thinking ahead, and this is a generous move, if they decide to go ahead. That's what this boglehead forum is for, to seek feedback and advice - we are all learning. :happy


One clarification - though you can open a 529 for relatives such as your siblings (or parents/parents-in-law as an earlier thread suggested), you cannot get any state tax deduction in Wisconsin for contributing to that plan. Only self, spouse, children, grandchildren/great-grandchildren, niece/nephew.
Retirement investing is a marathon.
User avatar
kenyan
 
Posts: 2352
Joined: Thu Jan 13, 2011 1:16 am

Re: 529s for Grandchildren that you don't have yet

Postby bungalow10 » Thu Apr 04, 2013 2:54 pm

I live in WI and feel like an idiot for never realizing I could contribute $3k/year for me and DH and get the state income tax deduction on it.

I have to go do some math, but I may be opening a couple 529s today.
An elephant for a dime is only a good deal if you need an elephant and have a dime.
bungalow10
 
Posts: 1664
Joined: Sat Apr 09, 2011 7:28 am


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: Bing [Bot], cfs, dgdevil, dollardummy, Epsilon Delta, global1, hotscot, Jazz56, jlgrandam, LoveMyDog, Lynette, MerriebytheSea, Tigermoose, user5027, William4u and 63 guests