Superfunding 529 plan: What should I know?

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theRoCK
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Superfunding 529 plan: What should I know?

Post by theRoCK »

I recently opened a 529 account for my 3.5yr old daughter at Vanguard and have been contributing bi-weekly. I also have some cash on hand which I would like to superfund the account with, to the tune of $60-75k. My understanding is even if I superfund it by $75k now, I still can contribute another 75k over 5 years since we file jointly. Please let me know if thats incorrect.

Assuming I do end up superfunding, is there anything I need to do in terms of taxes? Any extra form to fill out etc?

Thanks.
DIFAR31
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Re: Superfunding 529 plan: What should I know?

Post by DIFAR31 »

theRoCK wrote: Tue Apr 13, 2021 8:45 pm My understanding is even if I superfund it by $75k now, I still can contribute another 75k over 5 years since we file jointly. Please let me know if thats incorrect.
You can contribute as much as you want, up to the plan's maximum, which is likely more than you are contemplating here.

Assuming I do end up superfunding, is there anything I need to do in terms of taxes? Any extra form to fill out etc?
You will need to file a Form 709 (United States Gift Tax Return).
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FrugalProfessor
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Re: Superfunding 529 plan: What should I know?

Post by FrugalProfessor »

Not specifically what you asked, but something else you might want to consider....

With superfunding, you're likely not taking advantage of state tax benefits. Consequently, you're likely agnostic on which state's 529 play you use.

Therefore, I'd utilize California's 529 plan with a 0.06% all-in fee for their total US equity fund: https://www.scholarshare529.com/research/fees.shtml. It's the best in the country: https://www.bogleheads.org/wiki/529_cos ... rket_funds
I blog here: https://www.frugalprofessor.com/
stupidkid
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Re: Superfunding 529 plan: What should I know?

Post by stupidkid »

FWIW - I was going to super fund in one year and my accountant suggested I do a $30k deposit ($15k from each parent ), and do the same the next year. No forms, no tracking. Form isn't hard, but no form is easier. I invested the second deposit in the interim.
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theRoCK
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Re: Superfunding 529 plan: What should I know?

Post by theRoCK »

FrugalProfessor wrote: Tue Apr 13, 2021 9:27 pm Not specifically what you asked, but something else you might want to consider....

With superfunding, you're likely not taking advantage of state tax benefits. Consequently, you're likely agnostic on which state's 529 play you use.

Therefore, I'd utilize California's 529 plan with a 0.06% all-in fee for their total US equity fund: https://www.scholarshare529.com/research/fees.shtml. It's the best in the country: https://www.bogleheads.org/wiki/529_cos ... rket_funds
I live in Texas, so no state tax benefits. After a lot of analysis/paralysis on trying to choose the best plan etc., I just ended up going with Vanguard NV plan since I already had an account there. Prefer to just continue there.
DIFAR31 wrote: Tue Apr 13, 2021 8:52 pm
theRoCK wrote: Tue Apr 13, 2021 8:45 pm My understanding is even if I superfund it by $75k now, I still can contribute another 75k over 5 years since we file jointly. Please let me know if thats incorrect.
You can contribute as much as you want, up to the plan's maximum, which is likely more than you are contemplating here.

You will need to file a Form 709 (United States Gift Tax Return).
Thanks. Regarding the plan maximum comment, thats only for the lifetime of the account, right? But if I superfund it by 150k now for both me and my wife, then I cannot contribute anymore for the next 5 years to not run afoul of the gift tax is my understanding.
stupidkid wrote: Tue Apr 13, 2021 10:50 pm FWIW - I was going to super fund in one year and my accountant suggested I do a $30k deposit ($15k from each parent ), and do the same the next year. No forms, no tracking. Form isn't hard, but no form is easier. I invested the second deposit in the interim.
Thanks, I havent decided on superfunding or just investing in taxable. I may just DCA at 30k/year as you did.
DIFAR31
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Re: Superfunding 529 plan: What should I know?

Post by DIFAR31 »

theRoCK wrote: Wed Apr 14, 2021 5:37 pm
DIFAR31 wrote: Tue Apr 13, 2021 8:52 pm You can contribute as much as you want, up to the plan's maximum, which is likely more than you are contemplating here.

You will need to file a Form 709 (United States Gift Tax Return).
Thanks. Regarding the plan maximum comment, thats only for the lifetime of the account, right? But if I superfund it by 150k now for both me and my wife, then I cannot contribute anymore for the next 5 years to not run afoul of the gift tax is my understanding.
You can contribute until the account reaches its maximum amount. If the account balance subsequently goes below the maximum amount, you can start contributing again, until the account once again reaches the maximum amount. Earnings will continue to accrue regardless of what the account balance is.

Personally, I wouldn't call exceeding the gift tax annual exclusion amount "running afoul of the gift tax law." It just means you will need to file a Form 709.
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