529 Rollover “earnings”

[BryanMD]

I did rollovers of my previous 529s (WI & UT) and combined to a Fidelity 529 plan. I got a reminder from Fidelity that if the previous plans did not send a breakdown of the contributions and the earnings of the rolled over money there may be “tax consequences” and all rolled over funds would be considered earnings. What does this mean? Does this only apply if I were to withdraw the money for non education purposes? Are these tax consequences for this year or for this money down the road at withdrawal?

[GasFIRE]

The tax consequences would be down the road if you didn’t spend it on qualified educational expenses. Fidelity is telling you that the rollover funds have a basis but if we’re not told what it is it is all treated as earnings. Not a problem if you empty the account on your kids education. Basis could be subject to income tax if removed for non-educational purposes.

[FIREshrink]

Worth going back to the original accounts and saving contribution history (basis) before they delete it.

Why did you move from UT to Fido?

[BryanMD]

Ok that makes sense. The short warning they give on it didn’t really make it clear. I know I will have to pay back my previous years tax deduction from my WI in state plan contribution. Wasn’t sure if this whole contribution/earning division factored into that at all.

[BryanMD]

I moved from the Utah my529 to Fidelity mostly for simplicity sake. I was moving everything to Fidelity after getting rid of my advisor. Wanted to be able to see everything in one spot. My 529s for both kids are 70/30 Total US/Total Intl. the differences in ERs between the Utah and Fidelity funds were only a few basis points. I also found the Utah my529 website harder to navigate than Fidelity.

[spiritrider]

Why did you move from UT to Fido?

I moved from the Utah my529 to Fidelity mostly for simplicity sake.

Not to mention, Utah and Nevada haven't been the lowest cost 529 plans for several years now. I wouldn't change just for that reason, but if you were starting out or had other reasons. I would pick CA, NY or Fidelity (AZ, CT, SE, MA and NH) 529 plans over NV and UT 529 plans.

[FIREshrink]

I like UT for DFA

[spiritrider]

A significant majority of DFA's difference in performance is based on their tilting based on size and style characteristics. Asset classes that have underperformed over different periods in the last twenty years, including recently.

My opinion is that this is an unnecessary risk to take with the inherent short investment period of 529 plan use. You may be very well served by DFA funds in such a scenario, but I do not believe they should be a general recommendation for 529 assets.