Transfer 529 Plan? Need Advice

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mcnulty
Posts: 4
Joined: Tue Jul 08, 2014 9:22 pm

Transfer 529 Plan? Need Advice

Post by mcnulty » Wed Jul 11, 2018 12:51 am

Hi all,

My parents started 529 plans for each of my 3 children a year ago. They are KY residents, but they used VA's College America 529 plan (an American Funds advisor-sold plan). They did not do any research and did not realize that they would have been better off with a direct-sold plan. They contributed $50,000 to each child's plan and paid the advisor approximately 3.7% commission on that amount. The $150,000 is currently invested in American Funds College Target Date funds.

My parents informed me recently that they would like to contribute an additional $25,000 to each account and have asked for my advice on whether they should stay with the advisor-sold plan from American Funds or transfer the money to a direct-sold plan (such as NV's Vanguard 529 plan) and then contribute the additional funds. If they stay with the advisor-sold plan, they will again pay 3.7% commission on the $75,000 that they contribute. There is no fee for transferring the money to a direct-sold plan.

I'm unsure on how to advise them. Had they asked before the initial contribution, the answer would obviously have been to use a direct-sold plan. However, since they have already paid the advisor 3.7% percent, I'm unsure of whether the best path is to leave the money where it is or move it elsewhere before contributing more. A third option would be to leave the $150,000 in the VA plan with American Funds and start another 529 with the new funds with Nevada (or another low-cost direct-sold plan).

I would be extremely grateful for any guidance. Thanks very much.

JoeRetire
Posts: 1086
Joined: Tue Jan 16, 2018 2:44 pm

Re: Transfer 529 Plan? Need Advice

Post by JoeRetire » Wed Jul 11, 2018 5:46 am

mcnulty wrote:
Wed Jul 11, 2018 12:51 am
move it elsewhere before contributing more.
This.

Move it to a better lower-fee direct-sold plan. Then contribute more.

RickBoglehead
Posts: 331
Joined: Wed Feb 14, 2018 9:10 am

Re: Transfer 529 Plan? Need Advice

Post by RickBoglehead » Wed Jul 11, 2018 6:46 am

Can't imagine why you wouldn't remove the funds from VA's plan regardless, unless the investment options beat other plans. We have accounts with Utah's plan, now called My529. Read the requirement that the VA plan provide paperwork showing principal vs earnings.

https://my529.org/other-essentials/rollovers/

How did they contribute $50k to each account and avoid gift issues?

mcnulty
Posts: 4
Joined: Tue Jul 08, 2014 9:22 pm

Re: Transfer 529 Plan? Need Advice

Post by mcnulty » Sun Jul 15, 2018 1:46 pm

Thanks for the responses. Re: the $50,000 contribution, there is some provision that allows it, but I don't know the details. This is what I found from a quick Google search:
"Section 529 plans offer a special gifting feature. Specifically, you can make a lump-sum contribution to a 529 plan of up to five times the annual gift tax exclusion ($70,000 in 2017), elect to spread the gift evenly over five years, and completely avoid federal gift tax, provided no other gifts are made to the same beneficiary during the five-year period. A married couple can gift up to $140,000."

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