529s: One for family vs. One per kid

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scubadiver
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529s: One for family vs. One per kid

Post by scubadiver »

Right now we have one 529 plan with our oldest named as the beneficiary. Been saving modest amounts in there annually but have prioritized 401k and Roth accounts first. We have more than a year of tuition / room / board saved and depending upon when my wife (currently a stay-at-home mom) returns to work, we could have close to 4 years of savings in the account before my oldest goes to college. My thinking has been that any money left in the 529 after the oldest is done with college can be transferred to younger siblings. Regardless of how much is in the 529 plan, we expect to pay for all college costs through use of the 529 and by cash-flowing the difference.

My question relates to potential disadvantages of having just one 529 plan for the oldest and transferring leftover assets vice establishing a plan for each kid. This seems like a case of 6 one way, half a dozen the other, but perhaps I'm missing something. Thoughts?

Thanks,
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Re: 529s: One for family vs. One per kid

Post by livesoft »

One for each. Among other things, that way when you die, your intentions will be exceedingly clear.
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rkhusky
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Re: 529s: One for family vs. One per kid

Post by rkhusky »

You might have more than 1 in college at a time.
miamivice
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Re: 529s: One for family vs. One per kid

Post by miamivice »

We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
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Re: 529s: One for family vs. One per kid

Post by bloom2708 »

We did one 529 for each. One taxable account for each.

The returns for each kid were wildly different.

2000 kid went through 2 big dips
2003 kid went through 1 big dip
2007 kid basically missed both dips

2007 kid had 3x returns of kid 2000. Invested in the same funds.

What did that mean? Well, we need more as costs keep increasing. But, the earnings helped out.

Another reason is you can take less risk with the kid close/in college and more risk with the kids farther out.
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miamivice
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Re: 529s: One for family vs. One per kid

Post by miamivice »

scubadiver wrote: Mon Aug 19, 2019 8:00 am We have more than a year of tuition / room / board saved and depending upon when my wife (currently a stay-at-home mom) returns to work, we could have close to 4 years of savings in the account before my oldest goes to college. My thinking has been that any money left in the 529 after the oldest is done with college can be transferred to younger siblings. Regardless of how much is in the 529 plan, we expect to pay for all college costs through use of the 529 and by cash-flowing the difference.
I would probably rethink the college plan a bit to put less in the 529 and a bit into taxable. While you are correct that you'll likely have some college expenses, and thus a 529 is beneficial, you probably don't want to plan to pay 100% of college via the 529. If your kids get scholarships, choose cheaper options, or don't finish, you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.

For us, we are shooting for about 75% in 529 and the rest in taxable.
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Re: 529s: One for family vs. One per kid

Post by jerryk68 »

We have one for each grandchild. As each grandchild gets older their plan gets more conservative. We don't want a newborn in a conservative plan.
gtd98765
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Re: 529s: One for family vs. One per kid

Post by gtd98765 »

In a 529 the owner controls the money no matter who the beneficiary is. You can move money between beneficiaries; we moved two years of prepaid tuition from our son's to our daughter's account, since the son went to an out-of-state school.

To a certain extent it is mental accounting, but I don't really see a disadvantage in having one account per child.
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Re: 529s: One for family vs. One per kid

Post by gtd98765 »

you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.
Yes but remember the taxes and penalties are on the earnings, not the whole amount.
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

scubadiver wrote: Mon Aug 19, 2019 8:00 am My question relates to potential disadvantages of having just one 529 plan for the oldest and transferring leftover assets vice establishing a plan for each kid. This seems like a case of 6 one way, half a dozen the other, but perhaps I'm missing something. Thoughts?
This would be a problem:
rkhusky wrote: Mon Aug 19, 2019 8:07 am You might have more than 1 in college at a time.
Also, if your contribution exceeds the gift tax exclusion in a given year, you can avoid that by splitting the gift between the kids.

I see no disadvantage in having a separate account for each kid.
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Re: 529s: One for family vs. One per kid

Post by miamivice »

gtd98765 wrote: Mon Aug 19, 2019 8:15 am
you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.
Yes but remember the taxes and penalties are on the earnings, not the whole amount.
This is true. However, since you have to withdraw growth and contributions equally (you cannot withdraw growth first and contributions last), you will get hit with penalties and taxes if you do not use all of the money for qualified purposes.
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

miamivice wrote: Mon Aug 19, 2019 8:08 am We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
Note that changing the beneficiary to the next generation (i.e. parent to child in your case) will result in the balance being considered as a gift from parent to child. This won't be an issue for most people if gift and estate tax exemption remain at current levels. But there is the risk that the exemption is lowered or eliminated in the future.
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Re: 529s: One for family vs. One per kid

Post by Broken Man 1999 »

I have set up a 529 plan for each of our four grandchildren. The oldest was born in 2008, the youngest was born in 2013.

Given the tight grouping of their ages, it is possible that all four could be in college at the same time. Coordination could be a nightmare, in that case.
So, individual accounts seem better for them.

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Re: 529s: One for family vs. One per kid

Post by objectivefunction »

miamivice wrote: Mon Aug 19, 2019 8:11 am If your kids get scholarships ... you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.
If your kid gets a scholarship, you can withdraw the same amount from the 529 penalty free (that's my understanding anyway). https://www.kiplinger.com/article/colle ... rship.html

I have 5 kids and one 529 per kid. I don't contribute regularly to them. My in-laws give us money, and I'm putting more into my older kid's 529 than the younger since the younger's has more time to compound, and I plan on rolling over to the next sibling if someone doesn't use all the money or skips college or something. I'm also aiming for covering like 50% of the cost as a minimum. If I can get more in there, then great, if not then we look at other options or my kid gets a job or something.

A couple of others have made good points: 1) you can use different allocations for different kids given their different timelines, 2) you might have more than one in college at a time.

Additionally, if you get a state tax break you may be able to get more of a break with more accounts, depending on your state, number of beneficiaries, limits, etc.
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Re: 529s: One for family vs. One per kid

Post by miamivice »

objectivefunction wrote: Mon Aug 19, 2019 10:32 am
miamivice wrote: Mon Aug 19, 2019 8:11 am If your kids get scholarships ... you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.
If your kid gets a scholarship, you can withdraw the same amount from the 529 penalty free (that's my understanding anyway). https://www.kiplinger.com/article/colle ... rship.html
Yes, this is true. However, withdrawals are taxed at marginal income tax rates, not long term capital gains. For many Bogleheads, the marginal income tax rate is much higher than ltcg, so there still is a "penalty" of sorts.
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Re: 529s: One for family vs. One per kid

Post by miamivice »

Ben Mathew wrote: Mon Aug 19, 2019 8:59 am
miamivice wrote: Mon Aug 19, 2019 8:08 am We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
Note that changing the beneficiary to the next generation (i.e. parent to child in your case) will result in the balance being considered as a gift from parent to child. This won't be an issue for most people if gift and estate tax exemption remain at current levels. But there is the risk that the exemption is lowered or eliminated in the future.
Yes, however, you can gift up to 5 years gifts at once without being subject to the gift tax. That will allow us to gift up to $140,000 to our kids in 1 year without running into gift tax reporting issues.

As our children get older, we will have to pay attention to make sure that we follow the gift tax rules but they are generous enough that I am not concerned.
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Re: 529s: One for family vs. One per kid

Post by miamivice »

Ben Mathew wrote: Mon Aug 19, 2019 8:59 am
miamivice wrote: Mon Aug 19, 2019 8:08 am We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
Note that changing the beneficiary to the next generation (i.e. parent to child in your case) will result in the balance being considered as a gift from parent to child. This won't be an issue for most people if gift and estate tax exemption remain at current levels. But there is the risk that the exemption is lowered or eliminated in the future.
I wanted to respond a second time to this. I have never, ever in my life heard of parents having to pay gift tax because of their children's college education costs. Indeed, in certain instances, courts have required parents to fund their college education.

I don't think that the gift tax concern applies to parents funding their children's college education, but is more of a concern about grandparents paying for grandchildren's college.
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

miamivice wrote: Mon Aug 19, 2019 1:49 pm
Ben Mathew wrote: Mon Aug 19, 2019 8:59 am
miamivice wrote: Mon Aug 19, 2019 8:08 am We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
Note that changing the beneficiary to the next generation (i.e. parent to child in your case) will result in the balance being considered as a gift from parent to child. This won't be an issue for most people if gift and estate tax exemption remain at current levels. But there is the risk that the exemption is lowered or eliminated in the future.
I wanted to respond a second time to this. I have never, ever in my life heard of parents having to pay gift tax because of their children's college education costs. Indeed, in certain instances, courts have required parents to fund their college education.

I don't think that the gift tax concern applies to parents funding their children's college education, but is more of a concern about grandparents paying for grandchildren's college.
There is the gift tax exclusion for tuition, which is why parents don't normally have to pay gift tax when they pay their children's college costs. But for money coming out of a 529, I believe the rules for the 529 will apply without any special exception for parents and children. And those rules say that changing 529 beneficiaries to the next generation is a gift.

When I asked on another thread whether 529 funds can qualify for a gift tax exclusion in any situation, Spirit Rider responded:
Spirit Rider wrote: Sat Jan 19, 2019 11:22 pm The directly paid tuition exclusion has nothing to do with 529 plans.
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Re: 529s: One for family vs. One per kid

Post by UpsetRaptor »

Multiple accounts. Because of the pro-rated formula of gains on account withdrawals, this can also give you some flexibility on that front, managing withdrawals the most tax efficiently.
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Re: 529s: One for family vs. One per kid

Post by RickBoglehead »

Ben Mathew wrote: Mon Aug 19, 2019 3:23 pm And those rules say that changing 529 beneficiaries to the next generation is a gift.
I believe you are incorrect. I posted this on that other thread. Changing to the next generation has zero tax ramifications.
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

RickBoglehead wrote: Mon Aug 19, 2019 3:34 pm
Ben Mathew wrote: Mon Aug 19, 2019 3:23 pm And those rules say that changing 529 beneficiaries to the next generation is a gift.
I believe you are incorrect. I posted this on that other thread. Changing to the next generation has zero tax ramifications.
Can you link to your post on that thread? I couldn't find it.

This is what Spirit Rider posted on the thread I linked to.
Spirit Rider wrote: Sat Jan 19, 2019 9:48 pm
Afty wrote: Sat Jan 19, 2019 4:01 pm The internet consensus is that you can change the beneficiary to someone else in the same generation as the original beneficiary without gift tax consequences. If you change it to someone else in a different generation, it is treated as a gift but it is not clear whether the gift is from the owner or the original beneficiary. See https://www.fa-mag.com/news/avoiding-se ... -6204.html

I haven’t investigated the primary source for this, so it could be all wrong. If anyone has dug into the tax code and can provide an authoritative citation, I would love to see it.
It is not internet consensus. It is in the Section 529 code. Changing or rolling to a "family member" beneficiary of the same or higher generation is not subject to income taxes or gift tax reporting/potential liability. Changing or rolling to a "family member" beneficiary of a lower generation is subject to gift tax reporting/potential liability.

What is not in Section 529 is who has the gift tax reporting/potential liability, but that link is not correct that there has been no IRS guidance on who has the gift tax reporting/potential liabilty.

There are no finalized 529 regulations. The 1998 proposed regulations assigned the liability to the beneficiary. However, the 2008 notice of proposed rule making made a compelling case that this liability rests with the account owner.

The beneficiary has no control unless it is a UTMA 529 account. If not they cannot change or rollover to another beneficiary. So how can they have any liability?

Most tax professionals accept the 2008 notice as "substantial authority" that assesses income tax liability for any non-qualified distributions to the account owner and gift reporting/potential liability to the account owner for changing or rolling over to a lower generation. Only non-qualified distributions to the beneficiary are their liability.
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Re: 529s: One for family vs. One per kid

Post by Wiggums »

I think one account per child is best.

Good luck to you...
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Re: 529s: One for family vs. One per kid

Post by scubadiver »

Appreciate the comments and discussion. It’s very insightful to see the considerations that others are making in funding 529 plans.

As I mentioned in the original post, my oldest is the named beneficiary of the 529 plan that we currently have. My primary motivation for keeping with just the one plan was simplicity and backed by the comfort of knowing that I can transfer beneficiary designation amongst siblings. It does however seem that there are some benefits to having the multiple accounts and the consensus certainly favors that.

I’ll probably stew on this for a few more days before taking any action, but it seems like one account per kid is the way to go.

Thank you!

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Re: 529s: One for family vs. One per kid

Post by RickBoglehead »

Ben Mathew wrote: Mon Aug 19, 2019 3:42 pm
RickBoglehead wrote: Mon Aug 19, 2019 3:34 pm
Ben Mathew wrote: Mon Aug 19, 2019 3:23 pm And those rules say that changing 529 beneficiaries to the next generation is a gift.
I believe you are incorrect. I posted this on that other thread. Changing to the next generation has zero tax ramifications.
Can you link to your post on that thread? I couldn't find it.

This is what Spirit Rider posted on the thread I linked to.
Spirit Rider wrote: Sat Jan 19, 2019 9:48 pm
Afty wrote: Sat Jan 19, 2019 4:01 pm The internet consensus is that you can change the beneficiary to someone else in the same generation as the original beneficiary without gift tax consequences. If you change it to someone else in a different generation, it is treated as a gift but it is not clear whether the gift is from the owner or the original beneficiary. See https://www.fa-mag.com/news/avoiding-se ... -6204.html

I haven’t investigated the primary source for this, so it could be all wrong. If anyone has dug into the tax code and can provide an authoritative citation, I would love to see it.
It is not internet consensus. It is in the Section 529 code. Changing or rolling to a "family member" beneficiary of the same or higher generation is not subject to income taxes or gift tax reporting/potential liability. Changing or rolling to a "family member" beneficiary of a lower generation is subject to gift tax reporting/potential liability.

What is not in Section 529 is who has the gift tax reporting/potential liability, but that link is not correct that there has been no IRS guidance on who has the gift tax reporting/potential liabilty.

There are no finalized 529 regulations. The 1998 proposed regulations assigned the liability to the beneficiary. However, the 2008 notice of proposed rule making made a compelling case that this liability rests with the account owner.

The beneficiary has no control unless it is a UTMA 529 account. If not they cannot change or rollover to another beneficiary. So how can they have any liability?

Most tax professionals accept the 2008 notice as "substantial authority" that assesses income tax liability for any non-qualified distributions to the account owner and gift reporting/potential liability to the account owner for changing or rolling over to a lower generation. Only non-qualified distributions to the beneficiary are their liability.
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Re: 529s: One for family vs. One per kid

Post by bligh »

miamivice wrote: Mon Aug 19, 2019 11:12 am
objectivefunction wrote: Mon Aug 19, 2019 10:32 am
miamivice wrote: Mon Aug 19, 2019 8:11 am If your kids get scholarships ... you could end up with more in the 529 than they use for their college and will get hit with taxes and penalties.
If your kid gets a scholarship, you can withdraw the same amount from the 529 penalty free (that's my understanding anyway). https://www.kiplinger.com/article/colle ... rship.html
Yes, this is true. However, withdrawals are taxed at marginal income tax rates, not long term capital gains. For many Bogleheads, the marginal income tax rate is much higher than ltcg, so there still is a "penalty" of sorts.
Also remember that you don't have a time limit to when you withdraw those funds. They just sit there until you are ready to pull them. If I have money left over after the kids are done with university, my plan is to just leave it to my kids or set my grand kids as beneficiaries.

I figure if I ever find myself in a state where I _need_ to pull from the 529 plan for non qualified expenses, my income taxes wont be high enough for it to matter anyway. In that sense it is a nice way of increasing my tax sheltered / tax deferred space..
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

On that post, you stated:
RickBoglehead wrote: Mon Aug 19, 2019 2:04 pm There are no tax consequences if the change in beneficiary is to a member of the beneficiary's family:

For these purposes, the beneficiary's family includes the beneficiary's
spouse and the following other relatives of the beneficiary.
1. Son, daughter, stepchild, foster child, adopted child,
or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

We had 529s with our sons as beneficiaries. We can change the beneficiary to ourselves (be both owner and beneficiary), our future grandchildren, or any other person on that list.

IRS Pub 970- https://www.irs.gov/pub/irs-pdf/p970.pdf
What the IRS Pub 970 states is
Any amount distributed from a QTP isn't taxable if it's rolled over to either:
• Another QTP for the benefit of the same beneficiary or
for the benefit of a member of the beneficiary's family
(including the beneficiary's spouse),
IRS is saying that these are conditions under which the rollover is not taxable. They are not saying that there are no gift reporting requirements.
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Re: 529s: One for family vs. One per kid

Post by RickBoglehead »

Ben Mathew wrote: Mon Aug 19, 2019 5:57 pm
On that post, you stated:
RickBoglehead wrote: Mon Aug 19, 2019 2:04 pm There are no tax consequences if the change in beneficiary is to a member of the beneficiary's family:

For these purposes, the beneficiary's family includes the beneficiary's
spouse and the following other relatives of the beneficiary.
1. Son, daughter, stepchild, foster child, adopted child,
or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

We had 529s with our sons as beneficiaries. We can change the beneficiary to ourselves (be both owner and beneficiary), our future grandchildren, or any other person on that list.

IRS Pub 970- https://www.irs.gov/pub/irs-pdf/p970.pdf
What the IRS Pub 970 states is
Any amount distributed from a QTP isn't taxable if it's rolled over to either:
• Another QTP for the benefit of the same beneficiary or
for the benefit of a member of the beneficiary's family
(including the beneficiary's spouse),
IRS is saying that these are conditions under which the rollover is not taxable. They are not saying that there are no gift reporting requirements.
It is not a rollover. It is a change of beneficiary. From Pub 979:

Changing the Designated Beneficiary
The designated beneficiary can be changed. See Mem-
bers of the beneficiary's family, earlier. There aren't any
tax consequences if, at the time of the change, the new
beneficiary is under age 30 or is a special needs benefi-
ciary.
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

RickBoglehead wrote: Mon Aug 19, 2019 6:01 pm
Ben Mathew wrote: Mon Aug 19, 2019 5:57 pm
On that post, you stated:
RickBoglehead wrote: Mon Aug 19, 2019 2:04 pm There are no tax consequences if the change in beneficiary is to a member of the beneficiary's family:

For these purposes, the beneficiary's family includes the beneficiary's
spouse and the following other relatives of the beneficiary.
1. Son, daughter, stepchild, foster child, adopted child,
or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

We had 529s with our sons as beneficiaries. We can change the beneficiary to ourselves (be both owner and beneficiary), our future grandchildren, or any other person on that list.

IRS Pub 970- https://www.irs.gov/pub/irs-pdf/p970.pdf
What the IRS Pub 970 states is
Any amount distributed from a QTP isn't taxable if it's rolled over to either:
• Another QTP for the benefit of the same beneficiary or
for the benefit of a member of the beneficiary's family
(including the beneficiary's spouse),
IRS is saying that these are conditions under which the rollover is not taxable. They are not saying that there are no gift reporting requirements.
It is not a rollover. It is a change of beneficiary. From Pub 979:

Changing the Designated Beneficiary
The designated beneficiary can be changed. See Mem-
bers of the beneficiary's family, earlier. There aren't any
tax consequences if, at the time of the change, the new
beneficiary is under age 30 or is a special needs benefi-
ciary.
OK, I see that section now. I think publication 970 might be misleading here. I took a quick look at the section 529 code, and found what I think Spirit Rider was referring to:
(B) Treatment of designation of new beneficiary

The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) unless the new beneficiary is—
(i) assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and
(ii) a member of the family of the old beneficiary.
Last edited by Ben Mathew on Mon Aug 19, 2019 6:49 pm, edited 1 time in total.
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Re: 529s: One for family vs. One per kid

Post by RickBoglehead »

IRS pub rules for me and is very clear. I made changes, never heard anything. Done.
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Re: 529s: One for family vs. One per kid

Post by leeks »

We have one 529 per kid (ages 3 and 5). We started them at the same time and contribute identical amounts for now (each gets 5K per year so we hit the 10K max eligible for state/local tax savings).

Why two accounts? They only allow one adult's name to be on the account - no option to name both parents. Although it really doesn't matter, it just felt more balanced to have one in my name with one kid as the beneficiary and the other in my husband's name with the other kid as the beneficiary. Each child has received a small gift or two intended for his/her "college fund" and we added those to the specified child's account without having to worry about tracking them separately (they were such small gifts it doesn't matter, but it could if they get larger gifts later). Emotionally we like seeing separate accounts showing that the kids are being treated equally. We assume we will just move money between the two accounts as needed - college is a long way off for us so it is of no use to plan details yet.

The only disadvantage I can think of is that it is twice as much work to setup the accounts/contributions (two logins/passwords) and to login every month when I check all our accounts.
mike_in_ny
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Joined: Sat Dec 23, 2017 9:48 am

Re: 529s: One for family vs. One per kid

Post by mike_in_ny »

If there is any chance you will have too much money in the account, I'd propose
that you set them up in a slightly different (but more complicated) way. I'd open additional
accounts such that all the contributions in each account were of the same cost basis,
even if you needed to use different states to do that.

The reason for this is that all monies in an account have a blended cost basis
and you would want to pay tuition with the lowest cost basis money/account. If anything
is left over, then you would have the least capital gains to pay.

I have one 529 per each of my 3 kids. I heavily funded them in the 2009-12
timeperiod, was 100% stocks, and they became a considerable amount of
money (roughly 2X my investment). I will certainly have extra from kid #1, due to
scholarships, etc. I'd like to give her the residual money,, and even while using the
scholarship provision, it will incur considerable cap gains.

Or if that's too complicated....you could just have one account per kid! :D
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RickBoglehead
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Re: 529s: One for family vs. One per kid

Post by RickBoglehead »

mike_in_ny wrote: Mon Aug 19, 2019 8:39 pm If there is any chance you will have too much money in the account, I'd propose
that you set them up in a slightly different (but more complicated) way. I'd open additional
accounts such that all the contributions in each account were of the same cost basis,
even if you needed to use different states to do that.

The reason for this is that all monies in an account have a blended cost basis
and you would want to pay tuition with the lowest cost basis money/account. If anything
is left over, then you would have the least capital gains to pay.

I have one 529 per each of my 3 kids. I heavily funded them in the 2009-12
timeperiod, was 100% stocks, and they became a considerable amount of
money (roughly 2X my investment). I will certainly have extra from kid #1, due to
scholarships, etc. I'd like to give her the residual money,, and even while using the
scholarship provision, it will incur considerable cap gains.

Or if that's too complicated....you could just have one account per kid! :D
Give her residual funds from your pocket. Move her 529 funds to the other accounts.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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Ben Mathew
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Re: 529s: One for family vs. One per kid

Post by Ben Mathew »

leeks wrote: Mon Aug 19, 2019 7:36 pm We have one 529 per kid (ages 3 and 5). We started them at the same time and contribute identical amounts for now (each gets 5K per year so we hit the 10K max eligible for state/local tax savings).

Why two accounts? They only allow one adult's name to be on the account - no option to name both parents. Although it really doesn't matter, it just felt more balanced to have one in my name with one kid as the beneficiary and the other in my husband's name with the other kid as the beneficiary.
We decided that each parent would have an account for each kid, so total 2 parents * 2 kids = 4 accounts. Same amounts in all accounts.
shess
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Re: 529s: One for family vs. One per kid

Post by shess »

Ben Mathew wrote: Mon Aug 19, 2019 8:59 am
miamivice wrote: Mon Aug 19, 2019 8:08 am We have three 529s but none have our kids as beneficiaries. One is for my wife and two are for me.

Eventually, will will change the beneficiaries to the kids and rebalance so the balances are the same. That day is not today.
Note that changing the beneficiary to the next generation (i.e. parent to child in your case) will result in the balance being considered as a gift from parent to child. This won't be an issue for most people if gift and estate tax exemption remain at current levels. But there is the risk that the exemption is lowered or eliminated in the future.
Since we weren't entirely clear on this when planning on accounts for kids and nieces/nephews, our approach was:
- one account for each kid, that should be just fine no matter what.
- one account for myself and spouse, for funding nieces/nephews.
We funded each account with 2x the gift exclusion over 3 years (2x, 1x for me, 1x for spouse).

Our reasoning was that if things weren't as we expected when we decided to transfer to nieces/nephews (or kids, if really needed), we could split those transfers between our two accounts to double the amount. Since we were being generous but not THAT generous, that works out about right.

But, that said, my understanding is that there's not really any issue with having one plan and then cascading leftovers down to others.

But, THAT said, there's also not really any issue with splitting things up and raiding other kid accounts at need to fund your most-special kid...
runner540
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Re: 529s: One for family vs. One per kid

Post by runner540 »

Surprised no one has mentioned this yet: states have per account limits.
Right now they are pretty high limits relative to undergrad costs but who can say if these limits will keep pace with inflation over 20 years.
its another reason to do one per kid instead of one for the family.
Spirit Rider
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Re: 529s: One for family vs. One per kid

Post by Spirit Rider »

RickBoglehead wrote: Mon Aug 19, 2019 6:46 pm IRS pub rules for me and is very clear. I made changes, never heard anything. Done.
IRS Publications rule for no one. The courts have ruled consistently that IRS Publications are an assistance to taxpayers, but are NOT "substantial authority". What are considered substantial authority are the actual tax code and IRS regulations/guidance.

Most importantly, as I have repeatedly stated (with references). There is a gift tax reporting liability for changing or rolling over to a new beneficiary of a lower generation than the current beneficiary.

You are reading something into Publication 970 descriptions of "taxation" of distributions that just isn't there. Publication 970 specifically states; "There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family." You should not take the omission of gift tax reporting liability to mean anything.

The fact that you haven't heard anything from the IRS means absolutely nothing. Just because you got away with something does not mean you were correct or that anyone else should follow your lead. In fact, you are doing a tremendous disservice to forum members with your continual misinformation.
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