Taxable to 529 transfer with TLH

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Taxable to 529 transfer with TLH

Post by misgnomer » Thu Mar 26, 2020 11:21 am

My father-in-law started a joint Fidelity account (taxable) with my wife a few years back. My wife is listed as the primary account holder and her SSN is on the tax forms, etc. He’s put some money in it over the past few years and has told my wife it’s hers. Currently, the Fidelity account funds consist of:


The funds total around $25K now. The total gains/losses are about -$4,000 of losses. The most recent fund purchases were made between 07/2019 and 01/2020.

We’ve decided we’d like to put the funds into our 529 account. We started a 529 account a few years back as we had some other money from a relative we wanted to allocate towards that. At that time, we listed the beneficiary as our niece, knowing we could change the beneficiary to our child (who would be the same generation) once we had kids. Funds in the 529 are mainly large cap stocks currently. Fast forward to now, my wife is due to have our first child very soon (~1 week).

In terms of getting these Fidelity funds into the 529 what is the best way? I am also considering the TLH benefits. Here are the options I’m thinking of:

1). Should I sell all shares now and then transfer the money to the 529 currently under our niece’s name and then transfer the beneficiary to our child once he’s here?

2). Should I attempt to TLH and sell shares now and then purchase equivalent TLH funds and then attempt to sell these in a few months once our child is here and I’ve had time to transfer the 529 in his name? If so, does anyone have recommendations on equivalent funds (particularly for the bottom two)?

3). Should I keep everything as is and sell once I’ve had time to change 529 to our son in a few weeks/months?

I’m slightly worried about transferring all of this into the current 529 in our niece’s name all at once and wonder if it may create some type of problem doing that and then immediately changing the beneficiary. Is that not really an issue? Also, after researching, it appears you cannot do any type of in-kind transfer from a taxable account into a 529, is this accurate? Would I even want to as it would be better to sell and get the losses for TLH?

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