I have multiple children, and each one has a 529. Based on current funding and number of years until college, they are all roughly 60% funded of what they'll need. As I close that gap, does it make the most sense to only invest in the oldest kid's 529 since it can be moved to the next kids if not used? Feels pretty simple so I don't want to overthink it.
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529 Question
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Last: 9 mo ago by MAS444
Yes, I believe you can roll them down.
Be careful how much you put in them. Remember left over is taxed and pays a penalty (on the gains).
It may be smarter to invest the tail end into post-tax investments just in case.
Be careful how much you put in them. Remember left over is taxed and pays a penalty (on the gains).
It may be smarter to invest the tail end into post-tax investments just in case.
It's taxed if you take it out for non-educational expenses. You can roll it over to anyone.
I don't fund my (2) kids 529 more than I'm able to. In other words I am taking care of retirement, etc…
But I personally don't worry about overfunding. If I have extra they can use it for grad school ( likely with at least one kid if not both)
If there is more left over I'd gift it to grand children's 529
So, that doesn't necessarily answer your question, but I thought I'd mention there are other ways to manage this situation.
This is the way I've chosen to go about it.
I also have numerous nieces/nephews that I'd be happy to give to for college under certain circumstances
In all those cases, it's likely I will be transferring it to someone else.
It is worth mentioning that you won't get taxed unless you take it out for non educational reasons. You can convert it freely to someone else for educational purposes at anytime. Also, you don't have to take it out of a kids name when they graduate. Like if my daughter graduated and there were $25,000 left, I would just leave it there in her name for years allowing it to grow. If/when I had grandchildren, I could put some/all in that person's name
It's very possible that you could slightly over fund a child's education and, with all the time allowed to grow tax free, could have enough for a grandchild's education without adding any more $
I don't fund my (2) kids 529 more than I'm able to. In other words I am taking care of retirement, etc…
But I personally don't worry about overfunding. If I have extra they can use it for grad school ( likely with at least one kid if not both)
If there is more left over I'd gift it to grand children's 529
So, that doesn't necessarily answer your question, but I thought I'd mention there are other ways to manage this situation.
This is the way I've chosen to go about it.
I also have numerous nieces/nephews that I'd be happy to give to for college under certain circumstances
In all those cases, it's likely I will be transferring it to someone else.
It is worth mentioning that you won't get taxed unless you take it out for non educational reasons. You can convert it freely to someone else for educational purposes at anytime. Also, you don't have to take it out of a kids name when they graduate. Like if my daughter graduated and there were $25,000 left, I would just leave it there in her name for years allowing it to grow. If/when I had grandchildren, I could put some/all in that person's name
It's very possible that you could slightly over fund a child's education and, with all the time allowed to grow tax free, could have enough for a grandchild's education without adding any more $
The whole system is a mess. Each college should send you a tax form that tells you the total for qualified tuition expenses. On top of that the 529 account should send you a form telling your total amount of withdrawals. However, it must be noted that the college statement includes nothing about room & board, computer costs, etc. The reality is that if you look up the total cost of attendance for the year in question (on the internet), you can withdraw up to that amount. It doesn't matter whose 529 account it comes from. You are the owner of all of them. Don't include transportation costs & entertainment. Now, there's also a problem with the 529 statements, which, by the way, are NOT sent to the IRS. If you withdraw money on 12/26 so it will be in your account on 1/2 for a huge tuition payment, does the 529 statement count the withdrawal on the day it was initiated, the day the funds were withdrawn, or the day they landed in your account? I don't care; on my taxes I count them toward the year the tuition was paid. This means the statement from the 529 plan is only a guide, not a definitive answer. I'm putting 6 family members through school, and have spent 529 funds on HS tuition, college tuition, grad school, meal plans...all of it according to my best understanding of the rules. But there is a lot of nuance. I just try to make sure that what I do is defensible if the need arises.
94chem,
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
It sure seems this is a very difficult thing to track/regulate/enforce and I'm guessing that means it really isn't... Is anyone aware of someone being audited for this?
MAS444 said:
It sure seems this is a very difficult thing to track/regulate/enforce and I'm guessing that means it really isn't... Is anyone aware of someone being audited for this?
Darned good question. I just aim for plausibility at the end of the day. And I don't know that an accountant would give you a better answer.
94chem,
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
And a pro tip for any young parents, in case the interest rates ever drop again. If you could do a cash out refi at 3%, drop all the money into a 529 S&P 500 index fund, and let it sit for 15 - 20 years, you'd never have to put another penny into the 529 and basically pay for college with a 3% loan drawing tax free returns.
94chem,
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
I think before the Trump tax bill, it would've been even better because you could deduct the interest on the loan, but now you can only deduct if you use it for home improvement...and I don't lie about that (even though the law makes zero sense).
94chem,
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
That, sir, was the greatest post in the history of TexAgs. I salute you. -- Dough
May have been mentioned. You can also roll remaining over into an IRA for the named beneficiary which is cool. New in 2024
Not quite. You can roll up to a "lifetime limit of $35k".1Aggie99 said:
May have been mentioned. You can also roll remaining over into an IRA for the named beneficiary which is cool. New in 2024
1Aggie99 said:
May have been mentioned. You can also roll remaining over into an IRA for the named beneficiary which is cool. New in 2024
It is such a small amount that it really isn't consequential. I had a friend that over funded 529s for his grandchildren. So he enrolled in an accredited traveling cooking school and went on "trips" with his 529 funds to San Francisco, NOLA, Charleston and NYC to train under notable chefs. After all, he was furthering his education!
To the OP: I'd likely do exactly what you are thinking, which is to contribute to the oldest and let any residuals move to the next.
My oldest is a Junior in college so I haven't been doing it very long, but I haven't been audited and haven't heard of anyone else being audited. My method is to pay for everything out of pocket (tuition, fees, books, apartment) and then get reimbursed the exact amount spent from the 529 at the end of each semester. That makes it pretty easy to track. I keep a folder with all expenses for backup.
I want my kids to have some "skin in the game", so we make my son pay for his own meals and entertainment. We can afford to pay for everything, but I strongly believe one of the most important lessons learned in college is how to live on your own, develop a budget, and live within your means. If he wants to eat or have fun, he has to figure out a way to pay for it. He has a PT job on campus and does Door Dash every now and then when he wants some extra cash. Despite what you might have heard, most college kids have A LOT of free time, and they should learn to spend some of it being productive.
My oldest is a Junior in college so I haven't been doing it very long, but I haven't been audited and haven't heard of anyone else being audited. My method is to pay for everything out of pocket (tuition, fees, books, apartment) and then get reimbursed the exact amount spent from the 529 at the end of each semester. That makes it pretty easy to track. I keep a folder with all expenses for backup.
I want my kids to have some "skin in the game", so we make my son pay for his own meals and entertainment. We can afford to pay for everything, but I strongly believe one of the most important lessons learned in college is how to live on your own, develop a budget, and live within your means. If he wants to eat or have fun, he has to figure out a way to pay for it. He has a PT job on campus and does Door Dash every now and then when he wants some extra cash. Despite what you might have heard, most college kids have A LOT of free time, and they should learn to spend some of it being productive.
We're a ways away but I love the idea that has been talked about on this board before of buying a house/condo/etc (probably in an LLC to be safe) and using 529 funds to pay rent - so basically using tax free gained money to pay for it. I know it's been debated if this is proper use of 529 funds but it sure seems like it would be unlikely to get in trouble for this.
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