Lump Sum in 529 plan

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thefoggycity
Posts: 105
Joined: Fri Jan 03, 2014 11:08 am

Lump Sum in 529 plan

Post by thefoggycity » Thu Dec 06, 2018 10:57 pm

BHs,

My wife and I were recently gifted 60K from our families to put into our 1 year old child's 529. Pretty huge gift and we are wondering what the pros and cons to investing all in a 529 age-based option now or in chunks over time.

Thoughts?

Grt2bOutdoors
Posts: 19487
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Lump Sum in 529 plan

Post by Grt2bOutdoors » Thu Dec 06, 2018 11:39 pm

Pros - tax free compounding. 19 years of growth. $60k you will not have to save, it was gifted to your son. Probable double in 12 years if you earn 6% nominal. Probably another 50 - 80 percent gain from there to age 19.

Con - child does not go to college or vocational tech school. You invest and markets perform worse than expected, account value only doubled (#first world problems).
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

thefoggycity
Posts: 105
Joined: Fri Jan 03, 2014 11:08 am

Re: Lump Sum in 529 plan

Post by thefoggycity » Fri Dec 07, 2018 12:21 am

Thank you, makes sense. And with new 529 rules the $ can be used for K-12 too which relieves some of the burden of wondering about post-secondary. Preschool is not cheap.

donaldfair71
Posts: 357
Joined: Wed Mar 06, 2013 4:15 pm

Re: Lump Sum in 529 plan

Post by donaldfair71 » Fri Dec 07, 2018 7:01 am

After 15k for the year, you'll have to report the rest to the IRS. Note that you won't pay any taxes on that amount above and beyond until you go over about 11 million lifetime exemption, you'll start paying taxes. This likely doesn't affect 99.999999% of the population. But it's still a consideration IMO.

Also, if you're in some states, you can write off these contributions on your state taxes. Even better, like in Virginia, the write off is done per account. So it might make sense to open multiple separate accounts to get more written off for that calendar year.

Grt2bOutdoors
Posts: 19487
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Lump Sum in 529 plan

Post by Grt2bOutdoors » Fri Dec 07, 2018 7:51 am

donaldfair71 wrote:
Fri Dec 07, 2018 7:01 am
After 15k for the year, you'll have to report the rest to the IRS. Note that you won't pay any taxes on that amount above and beyond until you go over about 11 million lifetime exemption, you'll start paying taxes. This likely doesn't affect 99.999999% of the population. But it's still a consideration IMO.

Also, if you're in some states, you can write off these contributions on your state taxes. Even better, like in Virginia, the write off is done per account. So it might make sense to open multiple separate accounts to get more written off for that calendar year.
That’s not correct. The OP is not making the gift, their parents are. Th OP just needs to file to report the contribution as if they were contributing over a period of time.
Last edited by Grt2bOutdoors on Fri Dec 07, 2018 8:01 am, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Longmonster
Posts: 6
Joined: Sun Feb 04, 2018 12:40 pm

Re: Lump Sum in 529 plan

Post by Longmonster » Fri Dec 07, 2018 7:53 am

donaldfair71 wrote:
Fri Dec 07, 2018 7:01 am
After 15k for the year, you'll have to report the rest to the IRS. Note that you won't pay any taxes on that amount above and beyond until you go over about 11 million lifetime exemption, you'll start paying taxes. This likely doesn't affect 99.999999% of the population. But it's still a consideration IMO.

Also, if you're in some states, you can write off these contributions on your state taxes. Even better, like in Virginia, the write off is done per account. So it might make sense to open multiple separate accounts to get more written off for that calendar year.
I don't believe anything will need to be reported to the IRS as foggycity indicated he and his wife relieved the gift which splits it to $30K each and also mentioned families (plural) which splits it again to $15K.

donaldfair71
Posts: 357
Joined: Wed Mar 06, 2013 4:15 pm

Re: Lump Sum in 529 plan

Post by donaldfair71 » Fri Dec 07, 2018 8:12 am

Grt2bOutdoors wrote:
Fri Dec 07, 2018 7:51 am
donaldfair71 wrote:
Fri Dec 07, 2018 7:01 am
After 15k for the year, you'll have to report the rest to the IRS. Note that you won't pay any taxes on that amount above and beyond until you go over about 11 million lifetime exemption, you'll start paying taxes. This likely doesn't affect 99.999999% of the population. But it's still a consideration IMO.

Also, if you're in some states, you can write off these contributions on your state taxes. Even better, like in Virginia, the write off is done per account. So it might make sense to open multiple separate accounts to get more written off for that calendar year.
That’s not correct. The OP is not making the gift, their parents are. Th OP just needs to file to report the contribution as if they were contributing over a period of time.
Ok, but then the point stands that, technically speaking, the parents should be reporting that above $15,000 (or 30,000 as a couple), in a form 709.

Edit: Nevermind, clarification from another poster.
Last edited by donaldfair71 on Fri Dec 07, 2018 8:17 am, edited 1 time in total.

donaldfair71
Posts: 357
Joined: Wed Mar 06, 2013 4:15 pm

Re: Lump Sum in 529 plan

Post by donaldfair71 » Fri Dec 07, 2018 8:14 am

Longmonster wrote:
Fri Dec 07, 2018 7:53 am
donaldfair71 wrote:
Fri Dec 07, 2018 7:01 am
After 15k for the year, you'll have to report the rest to the IRS. Note that you won't pay any taxes on that amount above and beyond until you go over about 11 million lifetime exemption, you'll start paying taxes. This likely doesn't affect 99.999999% of the population. But it's still a consideration IMO.

Also, if you're in some states, you can write off these contributions on your state taxes. Even better, like in Virginia, the write off is done per account. So it might make sense to open multiple separate accounts to get more written off for that calendar year.
I don't believe anything will need to be reported to the IRS as foggycity indicated he and his wife relieved the gift which splits it to $30K each and also mentioned families (plural) which splits it again to $15K.
OK, gotcha. Thanks for the clarification. Makes sense then.

thefoggycity
Posts: 105
Joined: Fri Jan 03, 2014 11:08 am

Re: Lump Sum in 529 plan

Post by thefoggycity » Fri Dec 07, 2018 3:26 pm

Thanks, everyone. Much appreciated!

billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: Lump Sum in 529 plan

Post by billfromct » Fri Dec 07, 2018 4:34 pm

An individual can contribute up to $75,000 worth of gifts (5 years x $15,000) into a 529 plan in a lump sum as long as no other gifts are made to that person for the 5 years. Two parents can contribute up to $150,000 into a 529 plan in a lump sum without having to submit Form 709 to the IRS.

Google "lump sum into 529 plan".

bill

seadreamer
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Joined: Fri Dec 07, 2018 4:42 pm

Re: Lump Sum in 529 plan

Post by seadreamer » Fri Dec 07, 2018 5:07 pm

The 529 is not tax-deductible on some state income taxes when used for K-12. https://www.529conference.com/status-bo ... e-updates/

I'm also receiving a lump sum but I'm not putting all of it into a 529 because I want to use part of it for primary and secondary school. My child is already in kindergarten right now.

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