How to use 529 opened by grandparents?

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tomwood
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How to use 529 opened by grandparents?

Post by tomwood » Sun Jan 12, 2020 9:04 am

In PA, a 529 can be used for primary education at a private school and my inlaws want to partly contribute to that education. Can they open a 529 for grandchildren? Can a could have more then one 529 opened for them, in other words, can we also open a 529 for our kids?

I’ve never used a 529, so when tuituon is due, must a grandparent pay it to get reimbursed from the 529 if they took the state tax deduction?

rkhusky
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Re: How to use 529 opened by grandparents?

Post by rkhusky » Sun Jan 12, 2020 9:07 am

Yes, you can have more than one 529. Grandparents could open their own 529 or contribute to a 529 that you set up. You/they can have the 529 monies sent directly to the school.

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beyou
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Re: How to use 529 opened by grandparents?

Post by beyou » Sun Jan 12, 2020 9:11 am

A 529 had an acct owner and a beneficiary.

Grandparents can open as acct owners, name any beneficiary they want, even change it later from one grandchild to another (or any beneficiary).

You can open your own as acct owner as well, and name any beneficiary you want, including same picked by other acct owners, such as your kids.

Acct owners can either send $ directly to a school or withdraw and just keep records indicating that amount of funds were spent on qualified expenses. Both 529/owners could send checks to the school directly from 529 accts, which makes it easier to leave an audit trail with no doubt that the expenses were school tuition.

Spirit Rider
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Re: How to use 529 opened by grandparents?

Post by Spirit Rider » Sun Jan 12, 2020 9:15 am

Yes, more than one 529 can be opened by more than one individual for the same beneficiary. Each individual/beneficiary 529 account has a separate annual and/or 5-year gift tax exclusion.

Only qualified educational expenses paid by the account owner or beneficiary are eligible for reimbursement from the 529 account. Alternatively, qualified educational expenses can be paid directly from the 529 account.

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tomwood
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Re: How to use 529 opened by grandparents?

Post by tomwood » Sun Jan 12, 2020 9:29 am

rkhusky wrote:
Sun Jan 12, 2020 9:07 am
Yes, you can have more than one 529. Grandparents could open their own 529 or contribute to a 529 that you set up. You/they can have the 529 monies sent directly to the school.
If they were to contribute to a 529 we opened, would they send money directly to the 529 or to me/us and we fund the 529?
Would they still receive a state tax deduction if they fund an account we opened?

It sounds as though it might be easier to spend the 529 money on childrens’ education if it’s all in our one account. What’s the downside to having just one 529? Is the annual contribution limited more if it’s just one 529 opposed to 2 different account?

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tomwood
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Re: How to use 529 opened by grandparents?

Post by tomwood » Sun Jan 12, 2020 9:30 am

beyou wrote:
Sun Jan 12, 2020 9:11 am

Acct owners can either send $ directly to a school
Does the 529 act like a checking account? Would a check be written from the 529 to the qualified school?

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beyou
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Re: How to use 529 opened by grandparents?

Post by beyou » Sun Jan 12, 2020 9:32 am

Yes they send a check.

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tomwood
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Re: How to use 529 opened by grandparents?

Post by tomwood » Sun Jan 12, 2020 9:35 am

Spirit Rider wrote:
Sun Jan 12, 2020 9:15 am
. Each individual/beneficiary 529 account has a separate annual and/or 5-year gift tax exclusion.
I struggled to find an anual limit for funding a 529 other than the $15k/year gift tax limit. Is there a specific 529 limit? Or maybe more importantly, do individual states limit the amount of state tax deductions for a 529 each year?

Spirit Rider
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Re: How to use 529 opened by grandparents?

Post by Spirit Rider » Sun Jan 12, 2020 9:52 am

tomwood wrote:
Sun Jan 12, 2020 9:35 am
Spirit Rider wrote:
Sun Jan 12, 2020 9:15 am
. Each individual/beneficiary 529 account has a separate annual and/or 5-year gift tax exclusion.
I struggled to find an anual limit for funding a 529 other than the $15k/year gift tax limit. Is there a specific 529 limit? Or maybe more importantly, do individual states limit the amount of state tax deductions for a 529 each year?
Of the states that even offer a 529 tax deduction, most if not all limit their tax deduction.

Each state 529 plan has a limit the 529 can grow to before contributions are no longer allowed. I haven't looked at these limits recently, but they were in the $400K - $500K ballpark.

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tomwood
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Re: How to use 529 opened by grandparents?

Post by tomwood » Sun Jan 12, 2020 10:07 am

Spirit Rider wrote:
Sun Jan 12, 2020 9:52 am
tomwood wrote:
Sun Jan 12, 2020 9:35 am
Spirit Rider wrote:
Sun Jan 12, 2020 9:15 am
. Each individual/beneficiary 529 account has a separate annual and/or 5-year gift tax exclusion.
I struggled to find an anual limit for funding a 529 other than the $15k/year gift tax limit. Is there a specific 529 limit? Or maybe more importantly, do individual states limit the amount of state tax deductions for a 529 each year?
Of the states that even offer a 529 tax deduction, most if not all limit their tax deduction.

Each state 529 plan has a limit the 529 can grow to before contributions are no longer allowed. I haven't looked at these limits recently, but they were in the $400K - $500K ballpark.
Thank you.
Do you know if the state tax deductions (im in PA if you happen to know about that state) are only offered to those PA residents who contribute to the PA 529?
Or will a state (such as PA) allow the PA state tax deduction for PA residents who’s beneficiary are also in PA and the school is in PA, but the 529 is in another state with better 529 fund options?

MostWonderfulTime
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Re: How to use 529 opened by grandparents?

Post by MostWonderfulTime » Sun Jan 12, 2020 10:35 am

OP,
Your children are fortunate that their grandparents want to help fund a 529. To give you some more ideas, we opened 529 accounts for both our children (I was the account owner; the child was the beneficiary.) My in-laws also opened 529 accounts for each of their six grandchildren. My mother-in-law was the account owner; each child was the beneficiary. They set things up so that each of their three sons (who all live in different states) received quarterly 529 account statements for each of their two children. This allowed me to track the balance for our children and plan how to pay for college. In our case, we used the grandparent 529 to partially fund our children's senior year of college. This allowed their grandparents to continue gifting and the accounts to grow a few more years past high school graduation.

When the time came to pay the Universities, I used both payment methods from the 529s- 1) as reimbursements directly to me (from our 529s) and 2) payments directly to the academic institution (both 529s). My father-in-law and I coordinated with his financial advisor when the time came to use the 529 funds. Since my MIL was the account owner, we needed my in-laws to initiate the transaction. This was a very easy process for our family. I much preferred sending the money directly to the institution.

One item to consider. My father-in-law helped me make the arrangements for the first payment from our son's 529 account; he is their oldest grandchild and the first to access his accounts. My father-in-law passed away not long after this happened. I'm grateful our son had a chance to thank his grandfather for helping to send him to college. I've been helping my MIL and my BIL/SILs with the steps to access the money for their children since my FIL and I had figured out the process.

I hope this is helps and gives you some ideas.

increment
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Re: How to use 529 opened by grandparents?

Post by increment » Sun Jan 12, 2020 11:17 am

tomwood wrote:
Sun Jan 12, 2020 10:07 am
Do you know if the state tax deductions (im in PA if you happen to know about that state) are only offered to those PA residents who contribute to the PA 529?
Or will a state (such as PA) allow the PA state tax deduction for PA residents who’s beneficiary are also in PA and the school is in PA, but the 529 is in another state with better 529 fund options?
As I understand it, Pennsylvanian 529 owners can deduct for contributions to any state's 529 program. (This is unusual.)

Assets in the Pennsylvania 529 program are exempt from the state's inheritance tax. I believe that owners don't get that benefit from out-of-state programs.

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tomwood
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Re: How to use 529 opened by grandparents?

Post by tomwood » Mon Jan 13, 2020 4:54 pm

increment wrote:
Sun Jan 12, 2020 11:17 am
tomwood wrote:
Sun Jan 12, 2020 10:07 am
Do you know if the state tax deductions (im in PA if you happen to know about that state) are only offered to those PA residents who contribute to the PA 529?
Or will a state (such as PA) allow the PA state tax deduction for PA residents who’s beneficiary are also in PA and the school is in PA, but the 529 is in another state with better 529 fund options?
As I understand it, Pennsylvanian 529 owners can deduct for contributions to any state's 529 program. (This is unusual.)

Assets in the Pennsylvania 529 program are exempt from the state's inheritance tax. I believe that owners don't get that benefit from out-of-state programs.
Thank you.
When would an inheritance tax come into play? If a child passed away before spending this money on college?

increment
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Re: How to use 529 opened by grandparents?

Post by increment » Mon Jan 13, 2020 5:02 pm

tomwood wrote:
Mon Jan 13, 2020 4:54 pm
When would an inheritance tax come into play? If a child passed away before spending this money on college?
Legally a 529 is the property of the owner, probably parent or grandparent, not the beneficiary, probably the child (unless you choose to make the child the owner as well). It would be part of the estate, potentially taxable, when the owner dies.

kaneohe
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Re: How to use 529 opened by grandparents?

Post by kaneohe » Mon Jan 13, 2020 8:47 pm

increment wrote:
Mon Jan 13, 2020 5:02 pm
tomwood wrote:
Mon Jan 13, 2020 4:54 pm
When would an inheritance tax come into play? If a child passed away before spending this money on college?
Legally a 529 is the property of the owner, probably parent or grandparent, not the beneficiary, probably the child (unless you choose to make the child the owner as well). It would be part of the estate, potentially taxable, when the owner dies.
https://www.savingforcollege.com/grandp ... -529-plans

A 529 is a strange beast...........it is considered removed from the owner's estate yet the owner still gets to control it.

increment
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Re: How to use 529 opened by grandparents?

Post by increment » Tue Jan 14, 2020 12:10 am

kaneohe wrote:
Mon Jan 13, 2020 8:47 pm
https://www.savingforcollege.com/grandp ... -529-plans

A 529 is a strange beast...........it is considered removed from the owner's estate yet the owner still gets to control it.
It looks like states can have different opinions about this matter:
Pennsylvania, however, imposes its Inheritance Tax its residents' out-of-state 529 Plan Accounts. As with other taxable "transfers" at death, Pennsylvania taxes out- of-state 529 Plan Accounts according to the relationship of the "transferee" to the decedent. A 0% tax is imposed on taxable transfers to a spouse. A 4.5% tax is imposed on taxable transfers to lineal descendants...

forgeblast
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Re: How to use 529 opened by grandparents?

Post by forgeblast » Tue Jan 14, 2020 8:16 am

Its funny i was in my daughters 529 today (we are PA) moving some investments options around. Its powered(run) by vanguard. When you log in you can link accounts to the beneficiary. Its probably a good idea for you to make an account too, so you can link them all together. Its not a bad site to navigate.

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