529 funds

justme said:
My understanding... the 529 funds would be taxable if you take them out "for a SA". So, you would be re-investing that money in the Roth after paying tax on gains. If you convert the money directly from the 529 to the Roth, (the new rule starting next year) those gains go in tax free before and after. Both do the same thing, other than that one tax difference, and subject to same annual limits, etc.

I would love a tax expert to confirm/deny. That is how I read the articles about this. This is our current plan with DS' small 529. Converting in 10 years or so, once he gets to a point where he isnt maxing his own contribution to his roth.
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At the very least the part that you put straight into a Roth isn't. Since I already had a Roth before my 529 I had excess funds that I couldn't deposit into my Roth. That's taxable income.
 
nomad556 said:
At the very least the part that you put straight into a Roth isn't. Since I already had a Roth before my 529 I had excess funds that I couldn't deposit into my Roth. That's taxable income.
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Again, I think people really get caught up in the “taxable” part of the equation. If we are talking about a Cadet/Midshipmen their taxable income is minimal. Any tax incurred is far outweighed by the long term benefit of having that money in a retirement account at an early age.
 
UHBlackhawk said:
Again, I think people really get caught up in the “taxable” part of the equation. If we are talking about a Cadet/Midshipmen their taxable income is minimal. Any tax incurred is far outweighed by the long term benefit of having that money in a retirement account at an early age.
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10% fed tax on $35K is still a pretty significant sum. I agree with you on the long-term benefit of fully funding a retirement account at an early age. One approach to both avoid federal taxes and keep the youth's capital gains potential intact is to ratchet up the equity part of the 529 account. Just wish 529 plans could offer a bit of crypto exposure because DS often reminds me about crypto's gains/excitement/portfolio diversification potential vs drab/steady index funds ;-)
 
I think definitely the best financial play with the new law is yearly starting in 2024, start converting the 529 at the maximum yearly limit $6500? until you have reached the maximum 529 to Roth lifetime rollover limit of $35,000.

Then for anything over that, hold in the 529 until you are sure that they will not need it for Grad School or other family members education.

Then after that, disburse yearly while watching the tax brackets to the level where you don't trigger a higher tax bracket. You'll want to try to stay in the 12% tax bracket and just barely touch or avoid the 22% tax bracket triggered currently at $44,725 of taxable income . They will pay taxes on the gains that occurred in the 529 plan. Which if it is like our fairly conservative 529 over 18 years, only about 33% of the account is gains. So you get ~67% free and clear on the 529 withdrawal since they were 529 contributions, and you'll pay federal and state taxes on ~33% of the 529 withdrawal.
 
Huursoldaat said:
This has probably been discussed before, but the Forum search doesn't allow a search for "529". :mad:

How have folks handled 529 money they had saved when their child decided to attend a SA? I've heard you can use some of the money to pay for initial expenses (uniforms, computer, etc.).
I'm also pretty sure you can withdraw money against a scholarship. Does anybody know the value of a SA scholarship (USNA for my son if that is important).
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Per USA Today, passed late last year there has been a provision that allows tax-free rollovers of up to $35,000 in 529 tuition savings plans to Roth individual retirement accounts starting in 2024.

The rollovers can only begin if the money has been in a 529 for at least 15 years. The amount is also subject to annual Roth IRA limits. The contribution limit for 2023 is set at $6,500, with an extra $1,000 catch-up allowance for people over 50.

Article link: https://www.usatoday.com/story/mone...ducation-savings-rolled-roth-ira/11025092002/
 
Excellent topic!

We are awaiting the full interpretation of "open for at least 15 years", as we opened DD's 529 over 15 years ago, but transferred to a different plan midway. Hopefully as long as one can prove the initial opening date over 15 years ago with a qualified transfer of account to a different state's plan (and provider), that this will still be eligible immediately in 2024 for Roth IRA contributions.

@Trest33 , I agree, I wish DD's Vanguard 529 was as great with investment choices as my Fidelity HSA. Drives me nutso the limited options and limits how often you can switch. Of course i'd probably still advise all VTI anyway.
 
HCopter said:
@Trest33 , I agree, I wish DD's Vanguard 529 was as great with investment choices as my Fidelity HSA. Drives me nutso the limited options and limits how often you can switch. Of course i'd probably still advise all VTI anyway.
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I believe the Vanguard 529 Plan (at least the one I was in) permits investing in any of the Vanguard funds. What more would you want?
 
Don't Give Up the Ship said:
I believe the Vanguard 529 Plan (at least the one I was in) permits investing in any of the Vanguard funds. What more would you want?
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I want to pay .09% less for the same investment, for starters. Vanguard 529 Total stock market index portfolio charges .12% vs .03% for VTI. And I see no reason to pick a target date fund and pay .14% when I can DIY and pick a 3 or 4 fund portfolio and rebalance on my own terms vs. a set glide path. Vanguard's regular (non 529) target date funds charge .08% BTW.

My DD's only allows 2x switch per year; limits to various target date portfolios, balanced portfolios, various stock indexes, and bond portfolios. Basically, stuff you probably won't blow up a kid's 529 plan with. Far less than the total universe of Vanguard funds. But no individual stocks or ETFs, whereas my Fidelity HSA I can invest in individual stocks, ETFs, and individual bonds.
 
I haven't read the replies because I'm bookmarking this page and coming back with pen, paper, and highlighter.

But my financial advisor told me this: One way to deal with it is if your cadet has a sibling (or siblings, but let's just go with one sibling for purposes of this example)

18K is the maximum annual non-taxable gifting amount. So, each year:

Parent transfers 18K of Cadet's 529 to Sibling's 529.
Sibling gifts Cadet 18K.

So now, the Sibling has 18K more in their 529 which will go to tuition etc, and the Cadet has 18K of unrestricted funds that they can use on education/uniforms etc.

To make things go faster:
Parent transfers 54K (18K x 3) out of Cadet's 529 to Sibling's 529.
Sibling gifts Parent 1 18K, Parent 2 18K, and Cadet 18K
Parent 1 gifts Cadet 18K and Parent 2 gifts Cadet 18K
 
Monikat said:
I haven't read the replies because I'm bookmarking this page and coming back with pen, paper, and highlighter.

But my financial advisor told me this: One way to deal with it is if your cadet has a sibling (or siblings, but let's just go with one sibling for purposes of this example)

18K is the maximum annual non-taxable gifting amount. So, each year:

Parent transfers 18K of Cadet's 529 to Sibling's 529.
Sibling gifts Cadet 18K.

So now, the Sibling has 18K more in their 529 which will go to tuition etc, and the Cadet has 18K of unrestricted funds that they can use on education/uniforms etc.

To make things go faster:
Parent transfers 54K (18K x 3) out of Cadet's 529 to Sibling's 529.
Sibling gifts Parent 1 18K, Parent 2 18K, and Cadet 18K
Parent 1 gifts Cadet 18K and Parent 2 gifts Cadet 18K
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i would guess most college bound siblings don’t have sufficient liquid cash money to help the cadet launder money out of their 529 plan Into the cadets wallet. Especially in the amounts you propose.

Does your financial advisor sell timeshares and whole life insurance too?
 
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