Do we need to do anything with our 529s in 2022?

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miamivice
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Do we need to do anything with our 529s in 2022?

Post by miamivice »

We have two 529 accounts, one as my name as the beneficiary and the other as my wife. We have about $275,000 total between the two accounts.

The accounts of course are for our children, but we opened them before they were born so we had to use our names as the beneficiary instead of our children.

Do we need to do anything in 2022 to migrate them to our children? I am really hesitant to change them to my children's name...one is that it is extra work and my time is limited, and the other is I am not sure I am emotionally ready to declare to myself that they've earned the college money yet...

But we don't want to have to file gift taxes on any of the money for their college education, so if I need to do something in 2022 I will.

Thanks!
Figaro
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Re: Do we need to do anything with our 529s in 2022?

Post by Figaro »

There's usually no taxable situation when the account beneficiaries are changed over as long as they are family members.

So unless your kids are going to school in 2022 and using them, nothing needs to be done at this time.
marcopolo
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Re: Do we need to do anything with our 529s in 2022?

Post by marcopolo »

miamivice wrote: Sat Nov 27, 2021 2:46 pm We have two 529 accounts, one as my name as the beneficiary and the other as my wife. We have about $275,000 total between the two accounts.

The accounts of course are for our children, but we opened them before they were born so we had to use our names as the beneficiary instead of our children.

Do we need to do anything in 2022 to migrate them to our children? I am really hesitant to change them to my children's name...one is that it is extra work and my time is limited, and the other is I am not sure I am emotionally ready to declare to myself that they've earned the college money yet...

But we don't want to have to file gift taxes on any of the money for their college education, so if I need to do something in 2022 I will.

Thanks!

How old are your kids?
It may be too late to avoid filing gift tax return (form 709).
The change of beneficiary to a lower generation is considered a completed gift from the old beneficiary to the new beneficiary. You could do small transfers from these accounts to new ones with child as beneficiary and stay below the annual exemption each year, but that will take a number of years to complete, and of course will entail even more work which you seem to want to avoid.
Once in a while you get shown the light, in the strangest of places if you look at it right.
ilisira
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Re: Do we need to do anything with our 529s in 2022?

Post by ilisira »

marcopolo wrote: Sat Nov 27, 2021 2:54 pm
miamivice wrote: Sat Nov 27, 2021 2:46 pm We have two 529 accounts, one as my name as the beneficiary and the other as my wife. We have about $275,000 total between the two accounts.

The accounts of course are for our children, but we opened them before they were born so we had to use our names as the beneficiary instead of our children.

Do we need to do anything in 2022 to migrate them to our children? I am really hesitant to change them to my children's name...one is that it is extra work and my time is limited, and the other is I am not sure I am emotionally ready to declare to myself that they've earned the college money yet...

But we don't want to have to file gift taxes on any of the money for their college education, so if I need to do something in 2022 I will.

Thanks!



How old are your kids?
It may be too late to avoid filing gift tax return (form 709).
The change of beneficiary to a lower generation is considered a completed gift from the old beneficiary to the new beneficiary. You could do small transfers from these accounts to new ones with child as beneficiary and stay below the annual exemption each year, but that will take a number of years to complete, and of course will entail even more work which you seem to want to avoid.

If there are four kids, and two accounts (miamivice, and their spouse), assuming kids will get similar accounts in their accounts, this can be done pretty fast, right? Assuming they can transfer $15K per kid per account, it’s $120K that can be transferred in 2021, and another $120K in 2022 without hitting the annual tax exclusion limit.
marcopolo
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Re: Do we need to do anything with our 529s in 2022?

Post by marcopolo »

ilisira wrote: Sat Nov 27, 2021 2:59 pm
marcopolo wrote: Sat Nov 27, 2021 2:54 pm
miamivice wrote: Sat Nov 27, 2021 2:46 pm We have two 529 accounts, one as my name as the beneficiary and the other as my wife. We have about $275,000 total between the two accounts.

The accounts of course are for our children, but we opened them before they were born so we had to use our names as the beneficiary instead of our children.

Do we need to do anything in 2022 to migrate them to our children? I am really hesitant to change them to my children's name...one is that it is extra work and my time is limited, and the other is I am not sure I am emotionally ready to declare to myself that they've earned the college money yet...

But we don't want to have to file gift taxes on any of the money for their college education, so if I need to do something in 2022 I will.

Thanks!



How old are your kids?
It may be too late to avoid filing gift tax return (form 709).
The change of beneficiary to a lower generation is considered a completed gift from the old beneficiary to the new beneficiary. You could do small transfers from these accounts to new ones with child as beneficiary and stay below the annual exemption each year, but that will take a number of years to complete, and of course will entail even more work which you seem to want to avoid.

If there are four kids, and two accounts (miamivice, and their spouse), assuming kids will get similar accounts in their accounts, this can be done pretty fast, right? Assuming they can transfer $15K per kid per account, it’s $120K that can be transferred in 2021, and another $120K in 2022 without hitting the annual tax exclusion limit.
Sure, and if they had 8 kids, you could do it in a year. :beer
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
miamivice
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Re: Do we need to do anything with our 529s in 2022?

Post by miamivice »

Figaro wrote: Sat Nov 27, 2021 2:53 pm There's usually no taxable situation when the account beneficiaries are changed over as long as they are family members.

So unless your kids are going to school in 2022 and using them, nothing needs to be done at this time.
No, this isn't right. You can change from the same generation (one sibling to another) without tax consequence but cannot change the generation (parent to child) without potentially incurring gift tax reporting.
Topic Author
miamivice
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Re: Do we need to do anything with our 529s in 2022?

Post by miamivice »

Sounds like I should start thinking about making the transfers.

Our kids are in elementary school, so it's not too late yet, but I don't want to wait until the last minute. Kids grow up fast.
lazynovice
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Re: Do we need to do anything with our 529s in 2022?

Post by lazynovice »

miamivice wrote: Sat Nov 27, 2021 2:46 pm …..and the other is I am not sure I am emotionally ready to declare to myself that they've earned the college money yet...

Thanks!
I’m not sure what any 18 year old can do to “earn” their parents’ funding college. As a parent, you either feel obligated to pay for college or you don’t and the answers to that are all over the board.

If your wife is more emotionally ready, move her money first.

But changing beneficiaries is pretty simple, so if your kids somehow never earn it in your eyes- maybe they become juvenile delinquents or something, then you can change the beneficiary to someone else or cash out the account.
billfromct
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Re: Do we need to do anything with our 529s in 2022?

Post by billfromct »

The maximum individual Federal gift without having to file the IRS gift form (I forgot the form number) has been increased to $16,000 for 2022 from $15,000 for 2021.

bill
inbox788
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Re: Do we need to do anything with our 529s in 2022?

Post by inbox788 »

miamivice wrote: Sat Nov 27, 2021 3:37 pm Sounds like I should start thinking about making the transfers.

Our kids are in elementary school, so it's not too late yet, but I don't want to wait until the last minute. Kids grow up fast.
Yes. The rules for 529 are different and non-intuitive, so follow the unique rules. My understanding is that you can transfer annual gift amounts without taxes or reporting, and that might be the simplest thing. You can transfer back and forth, so the kids can gift back if you overfund the oldest. What I don't know is whether you can graduate the oldest and there's 15k left over whether you and your spouse can gift 30k AND the oldest gift the 15k to the next oldest all in the same year. You probably won't need to do this unless you severely underfund an expensive private school and have to make transfers during college years.

Let me know if you see it in print (link?) whether the account owner or beneficiary is the one making the gift when monies are transferred between siblings. https://www.marottaonmoney.com/how-to-t ... o-another/

There's also the 5 year superfund rule which would transfer any gains earlier, hence more transfer amount (assuming no crash or a recover by the end of the 5 years), but I think there's some minor tax form entries and numbers to report. Or if you're not concerned about the inheritance tax, you could just deal with the gift tax exemption and form all at once.

Anyway, if you spread it out and stay under the annual amounts, it keeps things simple.
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dkdoy
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Re: Do we need to do anything with our 529s in 2022?

Post by dkdoy »

I assume the annual gift transfer amount into the childs name and new contributions to the account are independent of each other? Meaning if I transfer 15k into childs name and contribute another 5k in new contributions for the year would that be acceptable? We are in the exact situation with grade school age child.
dukeblue219
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Re: Do we need to do anything with our 529s in 2022?

Post by dukeblue219 »

dkdoy wrote: Sun Nov 28, 2021 10:25 am I assume the annual gift transfer amount into the childs name and new contributions to the account are independent of each other? Meaning if I transfer 15k into childs name and contribute another 5k in new contributions for the year would that be acceptable? We are in the exact situation with grade school age child.
You still cannot give your child more than $15k in a year ($16k next year) without filing a form 709.

If you change $15k worth of 529 from your name to your kid's right now, that's your limit for the year. It's a gift just like handing them a check.
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dkdoy
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Re: Do we need to do anything with our 529s in 2022?

Post by dkdoy »

dukeblue219 wrote: Sun Nov 28, 2021 10:39 am
dkdoy wrote: Sun Nov 28, 2021 10:25 am I assume the annual gift transfer amount into the childs name and new contributions to the account are independent of each other? Meaning if I transfer 15k into childs name and contribute another 5k in new contributions for the year would that be acceptable? We are in the exact situation with grade school age child.
You still cannot give your child more than $15k in a year ($16k next year) without filing a form 709.

If you change $15k worth of 529 from your name to your kid's right now, that's your limit for the year. It's a gift just like handing them a check.
Thank you!
heerekj1
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Re: Do we need to do anything with our 529s in 2022?

Post by heerekj1 »

Let me see if I have this correct. Several years ago I set up Michigan 529 plans for my yet unborn grandchildren. I made my sons the beneficiary of each account. They had the expected grandchildren last year and there is current about $35K in each account.

I want to understand the process of changing beneficiary to grandchild and moving the funds. Do I set up fresh 529 accounts for the grandchildren and then transfer $16K/year until the account is empty. Does this count as a gift from my son to his child and I can continue to contribute to my sons 529 plan.
marcopolo
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Re: Do we need to do anything with our 529s in 2022?

Post by marcopolo »

heerekj1 wrote: Sun Nov 28, 2021 11:00 am Let me see if I have this correct. Several years ago I set up Michigan 529 plans for my yet unborn grandchildren. I made my sons the beneficiary of each account. They had the expected grandchildren last year and there is current about $35K in each account.

I want to understand the process of changing beneficiary to grandchild and moving the funds. Do I set up fresh 529 accounts for the grandchildren and then transfer $16K/year until the account is empty. Does this count as a gift from my son to his child and I can continue to contribute to my sons 529 plan.
The concern here would be the "step doctrine".
That is if your contribution to your son's 529 (also a gift) was really intended for your grandchild, then it could be viewed as actually being a gift to the grandchild. I am.not sure what the consequences of that are, there would not be any tax due in either case, only a requirement to fill out a form.
Once in a while you get shown the light, in the strangest of places if you look at it right.
dukeblue219
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Re: Do we need to do anything with our 529s in 2022?

Post by dukeblue219 »

heerekj1 wrote: Sun Nov 28, 2021 11:00 am Let me see if I have this correct. Several years ago I set up Michigan 529 plans for my yet unborn grandchildren. I made my sons the beneficiary of each account. They had the expected grandchildren last year and there is current about $35K in each account.

I want to understand the process of changing beneficiary to grandchild and moving the funds. Do I set up fresh 529 accounts for the grandchildren and then transfer $16K/year until the account is empty. Does this count as a gift from my son to his child and I can continue to contribute to my sons 529 plan.
You do not need to setup new accounts. Check with your state's provider but they'll have a change of beneficiary form you can fill out. The awkward situation is that changing from son to grandson counts as a gift from son to grandson, and son could be theoretically unaware that his gifting limit was being hit without knowing.

Then of course there is the potential for a step doctrine concern, but you can probably explain that away in the unlikely event of an audit. What you did was legitimate and had a purpose; it wasn't done simply to skirt gift tax rules, which will be easier to demonstrate if everyone in the family tree isn't already maxing limits elsewhere.
marcopolo
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Re: Do we need to do anything with our 529s in 2022?

Post by marcopolo »

dukeblue219 wrote: Sun Nov 28, 2021 12:05 pm
heerekj1 wrote: Sun Nov 28, 2021 11:00 am Let me see if I have this correct. Several years ago I set up Michigan 529 plans for my yet unborn grandchildren. I made my sons the beneficiary of each account. They had the expected grandchildren last year and there is current about $35K in each account.

I want to understand the process of changing beneficiary to grandchild and moving the funds. Do I set up fresh 529 accounts for the grandchildren and then transfer $16K/year until the account is empty. Does this count as a gift from my son to his child and I can continue to contribute to my sons 529 plan.
You do not need to setup new accounts. Check with your state's provider but they'll have a change of beneficiary form you can fill out. The awkward situation is that changing from son to grandson counts as a gift from son to grandson, and son could be theoretically unaware that his gifting limit was being hit without knowing.

Then of course there is the potential for a step doctrine concern, but you can probably explain that away in the unlikely event of an audit. What you did was legitimate and had a purpose; it wasn't done simply to skirt gift tax rules, which will be easier to demonstrate if everyone in the family tree isn't already maxing limits elsewhere.
I think the problem with simply changing the beneficiary on the account is that you can't do a partial transfer. So, the entire $35k would get gifted from son to grandson all at once, which might not be an issue, but would require son to file a gift return (form 709).
Once in a while you get shown the light, in the strangest of places if you look at it right.
dukeblue219
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Re: Do we need to do anything with our 529s in 2022?

Post by dukeblue219 »

marcopolo wrote: Sun Nov 28, 2021 12:15 pm I think the problem with simply changing the beneficiary on the account is that you can't do a partial transfer. So, the entire $35k would get gifted from son to grandson all at once, which might not be an issue, but would require son to file a gift return (form 709).
You certainly can in my state. They ask whether you want the whole account switched or part of it, and whether you want the funds kept where they are or moved to an existing portfolio for that beneficiary.
marcopolo
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Re: Do we need to do anything with our 529s in 2022?

Post by marcopolo »

dukeblue219 wrote: Sun Nov 28, 2021 1:17 pm
marcopolo wrote: Sun Nov 28, 2021 12:15 pm I think the problem with simply changing the beneficiary on the account is that you can't do a partial transfer. So, the entire $35k would get gifted from son to grandson all at once, which might not be an issue, but would require son to file a gift return (form 709).
You certainly can in my state. They ask whether you want the whole account switched or part of it, and whether you want the funds kept where they are or moved to an existing portfolio for that beneficiary.
You are saying you can have a single 529 account with two different beneficiaries, with portions of the single account assigned to the different beneficiaries?
First time I have heard of that possibilty.

EDIT: A quick Google search seems to show this is not allowed. Do you have referenece saying a single 529 account can have multiple beneficiaries?
Once in a while you get shown the light, in the strangest of places if you look at it right.
dukeblue219
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Re: Do we need to do anything with our 529s in 2022?

Post by dukeblue219 »

marcopolo wrote: Sun Nov 28, 2021 1:37 pm
dukeblue219 wrote: Sun Nov 28, 2021 1:17 pm
marcopolo wrote: Sun Nov 28, 2021 12:15 pm I think the problem with simply changing the beneficiary on the account is that you can't do a partial transfer. So, the entire $35k would get gifted from son to grandson all at once, which might not be an issue, but would require son to file a gift return (form 709).
You certainly can in my state. They ask whether you want the whole account switched or part of it, and whether you want the funds kept where they are or moved to an existing portfolio for that beneficiary.
You are saying you can have a single 529 account with two different beneficiaries, with portions of the single account assigned to the different beneficiaries?
First time I have heard of that possibilty.

EDIT: A quick Google search seems to show this is not allowed. Do you have referenece saying a single 529 account can have multiple beneficiaries?
You know, we may be using account in different ways. I now recall with my 529 every combination of beneficiary and portfolio is a separate "account" number. I've moved some funds from one investment (say, 2036 target date to 2024 target date) and they've sent me paperwork regarding my new account even though it's all in one place (one login). I'm guessing if one elects a partial beneficiary change there will be another account listed though you don't need to do anything to make that happen.

If that's what OP originally meant by create a new account then that approach certainly is doable if your plan won't do it automatically. I may have misread and assumed that OP was planning to create an entirely new login/profile with the intent to doing some sort of external rollover.
pizzy
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Re: Do we need to do anything with our 529s in 2022?

Post by pizzy »

dukeblue219 wrote: Sun Nov 28, 2021 2:21 pm
marcopolo wrote: Sun Nov 28, 2021 1:37 pm
dukeblue219 wrote: Sun Nov 28, 2021 1:17 pm
marcopolo wrote: Sun Nov 28, 2021 12:15 pm I think the problem with simply changing the beneficiary on the account is that you can't do a partial transfer. So, the entire $35k would get gifted from son to grandson all at once, which might not be an issue, but would require son to file a gift return (form 709).
You certainly can in my state. They ask whether you want the whole account switched or part of it, and whether you want the funds kept where they are or moved to an existing portfolio for that beneficiary.
You are saying you can have a single 529 account with two different beneficiaries, with portions of the single account assigned to the different beneficiaries?
First time I have heard of that possibilty.

EDIT: A quick Google search seems to show this is not allowed. Do you have referenece saying a single 529 account can have multiple beneficiaries?
You know, we may be using account in different ways. I now recall with my 529 every combination of beneficiary and portfolio is a separate "account" number. I've moved some funds from one investment (say, 2036 target date to 2024 target date) and they've sent me paperwork regarding my new account even though it's all in one place (one login). I'm guessing if one elects a partial beneficiary change there will be another account listed though you don't need to do anything to make that happen.

If that's what OP originally meant by create a new account then that approach certainly is doable if your plan won't do it automatically. I may have misread and assumed that OP was planning to create an entirely new login/profile with the intent to doing some sort of external rollover.
I wouldn’t ever assume a login = account
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