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aggressive up-front 529 contributions?

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  • aggressive up-front 529 contributions?

    Suppose that I might be anticipating a new child in the next 9 months or so and I wanted to get a 529 account off to a good start.  I know that the annual contribution limit is $14,000 (due to the gift tax limit).  I also know that I can front-load up to 5-years of contributions at one time (so $70,000), but the problem with that is I'm doubtful I could afford to put in that much at present.  I also know that if I wanted to open the account and start it before a child is born, I could open it in my own name and then later transfer the beneficiary to the child - doesn't this exempt me from the gift tax limit because (at least to start with) I am not gifting it to anyone because the money is supposedly for me?  For example, could I contribute $25,000 to myself this year, then after the child is born transfer the beneficiary and next year contribute $14,000?  Or am I missing something here?

    Also, somewhat relatedly, do people who track their net worth meticulously include 529 balances (or event 90% of the 529 balance, accounting for the penalty if you needed to get that money)?  Or do you exclude that money because it's not intended for you and because the intent of those funds is for them to be spent entirely at some point in the future?

  • #2
    Are you married? If so, you can each contribute $14k for a total of $28k. Even if you aren't married, both parents can contribute the $14k. It's just easier if you're married since the co-parent may not have the funds to contribute and can "join in" on a form 990 (gift tax return).

    The gift will be made only at the time you transfer the funds to the beneficiary. So, if you put $25k into the account this year and another $14k next year, you will be making a gift of $39k in 2017. Unless the child is born sooner.

    I'm not a doctor, but my understanding is that it was pretty hard to know 9 months ahead of time that you're having a baby. At least that's how it was when I had my kids, but it's been awhile :-)
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      Are you married? If so, you can each contribute $14k for a total of $28k. Even if you aren’t married, both parents can contribute the $14k. It’s just easier if you’re married since the co-parent may not have the funds to contribute and can “join in” on a form 990 (gift tax return).

      The gift will be made only at the time you transfer the funds to the beneficiary. So, if you put $25k into the account this year and another $14k next year, you will be making a gift of $39k in 2017. Unless the child is born sooner.

      I’m not a doctor, but my understanding is that it was pretty hard to know 9 months ahead of time that you’re having a baby. At least that’s how it was when I had my kids, but it’s been awhile :-)
      Click to expand...


      Modern medicine can be a wondrous thing.

      I get your point about it becoming a 'gift' when the beneficiary is transferred.  I suppose that means that anyone who wanted to try the strategy of opening a 529 before a child is born should make sure not to let the account exceed $14,000?  (Unless front-loading multi-year contributions.)

      I didn't know that each parent can contribute a 'gift' if married.  I suppose that's independent of whether or not the other parent earns any income?  It seems like it wouldn't be necessary to report it on a form 990 since there would be no reportable event to disclose.

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      • #4
        Are you getting a state tax deduction?  In my state there is a maximum yearly for that which might affect your decision.

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        • #5




          I didn’t know that each parent can contribute a ‘gift’ if married.  I suppose that’s independent of whether or not the other parent earns any income?  It seems like it wouldn’t be necessary to report it on a form 990 since there would be no reportable event to disclose.
          Click to expand...


          Yes, the spouse who is married but is not actually contributing (*if that is the case) "joins into" the gift. You would need to file a gift tax return to report; however, there would be no tax consequences. It's a simple DIY return to file. Earned income has nothing to do with it as you are contributing from your assets.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            About your question on tracking net worth.

            when you are starting, it is rewarding  to include all your assets, including home, 529s, autos, historic gun collections, etc.

            By the time of retirement , there is only one asset that matters- the invested assets.  The others are cost-of-ownership items ;  you can't eat them.

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            • #7
              Here's a better answer on front-loading your future child's 529. It can be done (according to the AICPA, which is  gospel to me), just not along normal channels. And, for others reading this post who are not as well-informed as you, this article on Forbes reviews reasons for doing so.

              I've edited my answer above.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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