Employer Forcing Transfer of 529

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
GatorBait2018
Posts: 2
Joined: Thu May 31, 2018 11:07 am

Employer Forcing Transfer of 529

Post by GatorBait2018 » Thu May 31, 2018 11:21 am

Long-time lurker, but first-time poster to the forum here, so please let me know if I have violated any norms or rules with my format.

My wife and I have been investing in a 529 plan for my son since he was born 2 years ago. My wife works as a consultant for a Big 4, and was recently promoted. As part of the promotion, she had to undergo an ethics/compliance review of all of our investments (cue my blood pressure rising having to share that info). Well, the only issue that came back to us was our investment in our 529 plan. The funds are invested in an index fund, but the issue is not the underlying investment, but the 529 advisor.

We invest through our state's 529 plan, which provides some tax benefits for us. But they are now telling me that I either need to change 529 plans to a pre-approved option, of which our state has no options so we wouldn't get the subsequent tax benefit, OR my other option is to transfer ownership of the account to a trusted relative. Neither of them sound like great options to me.

I'm curious if anyone on the board has some insight into this, specifically around the below questions. I've done some searching, but can't seem to find definitive answers.

1. Is this legal for an employer to say you cannot invest in a state-sponsored plan?

2. I've searched and it appears that there are no tax implications to transfer ownership to my father, and keep the beneficiary as my son. However, I'm curious about tax consequences down the line, for example, if my father were to pass away, or become incompetent (medically). Does this get counted towards his estate potentially? If we do transfer it back to my ownership, would this trigger a taxable event?

3. Are there any things I should be considering?

TIA for the assistance.

User avatar
Tyler Aspect
Posts: 1085
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: Employer Forcing Transfer of 529

Post by Tyler Aspect » Thu May 31, 2018 11:54 am

Is your state going to revoke your tax benefits if you move the 529 account to a different state? New York and Utah are two states with the lowest expense ratio options.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Frank Grimes
Posts: 109
Joined: Tue Mar 07, 2017 10:54 am

Re: Employer Forcing Transfer of 529

Post by Frank Grimes » Thu May 31, 2018 12:11 pm

I have no advice, but as a big 4 alum I empathize with the situation. The higher you get, the more restrictive the independence rules get.

capwrmt
Posts: 3
Joined: Sun Aug 17, 2008 8:41 pm

Re: Employer Forcing Transfer of 529

Post by capwrmt » Thu May 31, 2018 12:16 pm

When I was in Big 4 consulting, I had to report all financial holdings for myself and my spouse. I think it was because the Big 4 had an accounting / auditing arm, and it was to avoid conflicts of interest due to government regulations. I'm assuming that the 529 entity is a client of the Big 4 accounting business, or there's some type of relationship there.

User avatar
vineviz
Posts: 1322
Joined: Tue May 15, 2018 1:55 pm

Re: Employer Forcing Transfer of 529

Post by vineviz » Thu May 31, 2018 12:35 pm

You are right to be worried about transferring ownership to your father, especially if you think he might otherwise qualify for Medicaid at some point.

Not all states will claim back the tax if you rollover the 529 plan, but you only get one shot at the rollover every 12 months so you'd want to figure out whether your state will hit you up for taxes. If the tax bill is low, just paying it is probably the easiest route (and if your wife has any negotiation leverage she might even get the firm to pay the tax in the form of a bonus).

The other thought I had (and this would go to your lawyer, which I am not) is that you might be able to transfer ownership fo the 529 plan to a trust that you and your wife create (or, possibly, already have as part of your estate planning) and for which you act as trustees. I don't know if a revocable trust would be acceptable to Big 4, and an irrevocable trust might be too restrictive for you. Setting either one up could possibly cost more than the tax bill but, as I said, the trust might have other uses for you down the road.

More reading: https://www.putnamwealthmanagement.com/ ... ust-assets and http://media.straffordpub.com/products/ ... tation.pdf.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Jack FFR1846
Posts: 7645
Joined: Tue Dec 31, 2013 7:05 am

Re: Employer Forcing Transfer of 529

Post by Jack FFR1846 » Thu May 31, 2018 12:39 pm

Can you roll the 529 into US Savings Bonds?
Bogle: Smart Beta is stupid

User avatar
hornet96
Posts: 426
Joined: Sun Nov 25, 2012 6:45 pm

Re: Employer Forcing Transfer of 529

Post by hornet96 » Thu May 31, 2018 1:30 pm

Yes, this is typical of the Big 4 firms (I am a Big 4 alumni myself, and remember your pain). I can't remember the exact independence rules, but for some reason the 529 plans have especially onerous independence requirements, and when you're promoted to manager or above, they apply to you. Even if your firm doesn't audit the state's plan or its underlying funds, I think the plan can still be restricted if the firm audits or provides other attestation services to the state government that is sponsoring the plan. (I may be wrong about that so you should ask your wife to get a copy of her firm's independence manual and review it together.)

Essentially, you can blame the AICPA and SEC independence requirements for being forced to transfer your funds to an approved arrangement.

If I would have stayed until I made partner, I would have basically only had a couple of financial firms that I would have been allowed to invest any money at all with (Wells Fargo and Northwestern Mutual). Talk about horrors..... :shock:

User avatar
UpsetRaptor
Posts: 185
Joined: Tue Jan 19, 2016 5:15 pm

Re: Employer Forcing Transfer of 529

Post by UpsetRaptor » Thu May 31, 2018 4:25 pm

What state? A resident of the following states (at the time of this writing) will get the state tax deduction/credit even if the resident uses another state's plan: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania.

At least the rule is there for the company's own compliance with regulations, to avoid conflicts of interest. Sucks, but somewhat understandable. If you work for an advisory firm, or a large bank that has an advisory arm, they often have "can't use anyone else's advised accounts" rules just because they want the advisory fees. I don't know if that applies to 529s as well, but THAT would get my blood boiling.

rkhusky
Posts: 5422
Joined: Thu Aug 18, 2011 8:09 pm

Re: Employer Forcing Transfer of 529

Post by rkhusky » Thu May 31, 2018 4:49 pm

This wiki article might have some useful information:
https://www.bogleheads.org/wiki/529_pla ... _transfers

simas
Posts: 261
Joined: Wed Apr 04, 2007 5:50 pm

Re: Employer Forcing Transfer of 529

Post by simas » Thu May 31, 2018 7:45 pm

"you can blame the AICPA and SEC independence requirements for being forced to transfer your funds to an approved arrangement. "


Yes, this is normal as dictated by various regulatory rules so thank your government to make you feel safer and secure and protecting you from fraud - did she get more money out of the promotion at least? hopefully far beyond the tax benefit you are about to adjust.



And I worked for FINRA member which had its own rules and I could not have any outside brokerage accounts that are not kept with the firm (few minor exceptions) . Don't like it - resign and find a different job was the message as these are again regulatory rules.

GatorBait2018
Posts: 2
Joined: Thu May 31, 2018 11:07 am

Re: Employer Forcing Transfer of 529

Post by GatorBait2018 » Mon Jun 04, 2018 11:02 pm

Thanks for the replies everyone. Looks like I'm going to have to eat this one, at least in the short term, furthering my dislike of my wife's employer.
simas wrote:
Thu May 31, 2018 7:45 pm
"you can blame the AICPA and SEC independence requirements for being forced to transfer your funds to an approved arrangement. "


Yes, this is normal as dictated by various regulatory rules so thank your government to make you feel safer and secure and protecting you from fraud - did she get more money out of the promotion at least? hopefully far beyond the tax benefit you are about to adjust.



And I worked for FINRA member which had its own rules and I could not have any outside brokerage accounts that are not kept with the firm (few minor exceptions) . Don't like it - resign and find a different job was the message as these are again regulatory rules.
OP here. This does not make me feel safer or more secure, and probably adds to my exposure to fraud if anything. We have lots of other investments, and the only one that raised any flags was the 529 plan. The more I've dug into it, the reason appears to be a giant CYA from various levels of compliance. We legit have a bigger conflict of interest by being voters.

AlphaLess
Posts: 591
Joined: Fri Sep 29, 2017 11:38 pm

Re: Employer Forcing Transfer of 529

Post by AlphaLess » Mon Jun 04, 2018 11:05 pm

simas wrote:
Thu May 31, 2018 7:45 pm
And I worked for FINRA member which had its own rules and I could not have any outside brokerage accounts that are not kept with the firm (few minor exceptions) . Don't like it - resign and find a different job was the message as these are again regulatory rules.
YUP. Finra member firms or advisors, associated persons, and registered representatives:
- limit which brokers you can hold your funds with,
- limit what investments you can purchase.

Spirit Rider
Posts: 8587
Joined: Fri Mar 02, 2007 2:39 pm

Re: Employer Forcing Transfer of 529

Post by Spirit Rider » Tue Jun 05, 2018 12:05 am

GatorBait2018 wrote:
Mon Jun 04, 2018 11:02 pm
Thanks for the replies everyone. Looks like I'm going to have to eat this one, at least in the short term, furthering my dislike of my wife's employer.
simas wrote:
Thu May 31, 2018 7:45 pm
Yes, this is normal as dictated by various regulatory rules so thank your government to make you feel safer and secure and protecting you from fraud - did she get more money out of the promotion at least? hopefully far beyond the tax benefit you are about to adjust.
OP here. This does not make me feel safer or more secure, and probably adds to my exposure to fraud if anything. We have lots of other investments, and the only one that raised any flags was the 529 plan. The more I've dug into it, the reason appears to be a giant CYA from various levels of compliance. We legit have a bigger conflict of interest by being voters.
These investment location and tracking requirements have nothing to do with protecting you from fraud and everything to do with your potential conflicts of interest, insider trading, etc...

simas
Posts: 261
Joined: Wed Apr 04, 2007 5:50 pm

Re: Employer Forcing Transfer of 529

Post by simas » Tue Jun 05, 2018 7:32 am

GatorBait2018 wrote:
Mon Jun 04, 2018 11:02 pm
Thanks for the replies everyone. Looks like I'm going to have to eat this one, at least in the short term, furthering my dislike of my wife's employer.

OP here. This does not make me feel safer or more secure, and probably adds to my exposure to fraud if anything. We have lots of other investments, and the only one that raised any flags was the 529 plan. The more I've dug into it, the reason appears to be a giant CYA from various levels of compliance. We legit have a bigger conflict of interest by being voters.
the perspective is not unique... at the same time, it would not change anything - if she does not like it, she can always quit. that is one of the reasons finance pays higher (or should, at least). as for being voters, next time you vote to 'stick it to the man' and 'regulate the corporations', think of this as you make this decision - each and every 'stick it to the man' is sticking it to yourself, and ALL costs are embedded in the price of goods/services you buy (corporation simply passes them to you), and all of the protections that are put in are ultimately costs of doing business and further passed to you as consumer. Does not mean it is useless or should all be removed, as for whether we passed a point of sanity , I will withhold my opinion...

in my role (which was not audit facing), I still had auditors non stop every week every year, from Feds (Treasury) to FINRA, to exchanges, to derivatives specific agencies, to states, etc. rinse, repeat. never ending stream of rules and 'clarifications' (new rules hidden under explaining how to read old rules), all of the fun of working in finance. consider yourself lucky that 529 is the only thing that tripped the compliance disclosure document, she could also be working for the firm that would record each and every keystroke, every conversation she has on the phone, capture every screen, and video record every second she has on her workplace. With liabilities involved and desire to sue 'the man', this is what many corporations moving to. Key card to enter every room (so second by second path could be determined of where employee went and is at this second), video cameras everywhere other than bathrooms (waiting for someone to do something illegal there and see how much consumer protection agencies would push to ensure there are no 'loopholes' :) ).

GreenGrowTheDollars
Posts: 351
Joined: Fri Dec 18, 2015 11:09 pm

Re: Employer Forcing Transfer of 529

Post by GreenGrowTheDollars » Tue Jun 05, 2018 8:47 am

Does the reporting requirement extend to your children's assets? If not, you can probably have the account re-titled in your child's name as owner. (Of course, at 18/19 (in Nebraska, I think) your kid could decide that a Corvette is more attractive than chemistry.

tibbitts
Posts: 7944
Joined: Tue Feb 27, 2007 6:50 pm

Re: Employer Forcing Transfer of 529

Post by tibbitts » Tue Jun 05, 2018 6:51 pm

GatorBait2018 wrote:
Mon Jun 04, 2018 11:02 pm
Thanks for the replies everyone. Looks like I'm going to have to eat this one, at least in the short term, furthering my dislike of my wife's employer.
simas wrote:
Thu May 31, 2018 7:45 pm
"you can blame the AICPA and SEC independence requirements for being forced to transfer your funds to an approved arrangement. "


Yes, this is normal as dictated by various regulatory rules so thank your government to make you feel safer and secure and protecting you from fraud - did she get more money out of the promotion at least? hopefully far beyond the tax benefit you are about to adjust.



And I worked for FINRA member which had its own rules and I could not have any outside brokerage accounts that are not kept with the firm (few minor exceptions) . Don't like it - resign and find a different job was the message as these are again regulatory rules.
OP here. This does not make me feel safer or more secure, and probably adds to my exposure to fraud if anything. We have lots of other investments, and the only one that raised any flags was the 529 plan. The more I've dug into it, the reason appears to be a giant CYA from various levels of compliance. We legit have a bigger conflict of interest by being voters.
This is a well-known issue with your industry, but probably employers interpret the law somewhat differently. You could consult with a lawyer who's an expert in the field and determine if the law is being applied in a reasonable manner, but my guess is it is, and my guess is you would have no practical recourse if it isn't. But if you're willing to throw thousands of dollars at this for the sole benefit of enlightening the rest of us... we'd appreciate that.

Post Reply