Author Topic: 529 plan uses  (Read 995 times)

hgjjgkj

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529 plan uses
« on: May 30, 2019, 10:04:26 PM »
I have a few 529 questions.  I may not have kids but would like to open a 529 now for the state tax deduction.

1) Could i designate my oldest member of my family as a beneficiary then get the 10% penalty waived?
2) Alternatively could I pay for a 1 week course in paris or something and also expense hotel and use this as a vacation fund much later?
3) Could I make my brother's kid the beneficiary and then have him pay me so I unlock my cash 

Trying to think of some creative ways to avoid the  penalty.

seattlecyclone

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Re: 529 plan uses
« Reply #1 on: May 30, 2019, 11:37:35 PM »
I have a few 529 questions.  I may not have kids but would like to open a 529 now for the state tax deduction.

1) Could i designate my oldest member of my family as a beneficiary then get the 10% penalty waived?

Not sure how the age of the beneficiary affects the penalty, unless you're suggesting you would designate an elderly person as beneficiary in hopes that they would die soon. If that's your plan, be aware that the penalty is only waived if the distribution is paid to the deceased beneficiary or their estate (source: IRS Publication 970). Maybe if you can convince them to write you into their will...

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2) Alternatively could I pay for a 1 week course in paris or something and also expense hotel and use this as a vacation fund much later?

If this is arranged through an eligible educational institution (pretty much any accredited US university, plus some foreign ones), the tuition and any required fees, books, and supplies could be a qualifying expense. Reasonable room and board expenses can also qualify if you're at least a half-time student. Other travel expenses generally wouldn't count.

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3) Could I make my brother's kid the beneficiary and then have him pay me so I unlock my cash

Maybe? Seems shady. What's in it for him? Note that there are rules against double-dipping between 529 withdrawals and educational tax credits, so this would only maybe be an option for the portion of his expenses that exceed the maximum you can claim for those credits, and even then I wouldn't really advise someone to try this.

For me personally, my thoughts on what I might do if my kids don't use their full 529 is to do one of these two things:
1) Take some classes myself at a local community college, enough to qualify as a half-time student. I would then be able to take out the tuition plus reasonable room and board charges tax-free.
2) Let the money ride for any grandkids I might have. It has already been set aside for education; if the intended recipient doesn't need it, maybe their kids will.

Buffalo Chip

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Re: 529 plan uses
« Reply #2 on: May 31, 2019, 03:27:46 AM »
I'm a fan of 529 plans because of the state tax deduction which can be a more or less instant return on investment.  That said, these really are for educational expenses.  If you're planning on going to school later in life, they're one way to save for it.  Depending on the plan, you may/should be able to change beneficiaries if needs so dictate.  You should do your research on the plan you think you might use.  If you're just looking for a place to stash cash for non educational expenses in the future, then a Roth IRA might be a better option.   

EricEng

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Re: 529 plan uses
« Reply #3 on: June 14, 2019, 01:33:50 AM »
It's very difficult to game a 529 outside your immediately family and not really worth it for just the state tax savings.  If your state tax is only 5%, then you are talking about 1 years average gains.  Is that worth risking audit and 10% penalty for fancy tricks?  Or causing estate, family issues by shuffling money around?  It's a nice perk for those going to school, not worth it otherwise.