Author Topic: 529 plan use order - am I missing anything?  (Read 1075 times)

Jules13

  • Bristles
  • ***
  • Posts: 250
    • January Girl
529 plan use order - am I missing anything?
« on: May 24, 2024, 12:03:04 PM »
We have 529 plans for each of our kids.  My Dad also has a 529 plan for each of them that my late Mom set up. 

Our oldest is beginning college in the Fall.  My inclination is to use the Grandparent 529 $$ first so that if there is any money left over (out of both 529s), it will be in our 529 account and then we have control over it and I don't have to keep asking my Dad how much is in his and that money gets used up first. 

Neither will affect financial aid for my son as he's going to a state school and we don't qualify for any needs-based aid. 

So, my question is....and I missing anything else as to if it matters which 529 funds (ours or my Dad's) we use first? 

Thanks!

MaybeBabyMustache

  • Walrus Stache
  • *******
  • Posts: 6575
    • My Wild Ride to FI
Re: 529 plan use order - am I missing anything?
« Reply #1 on: May 24, 2024, 12:17:12 PM »
We only have one 529 for each kid, so we plan to spend from those first & then cash flow. That said, I've been doing reading on paying tuition bills, etc, and many colleges want the parents to pay directly to the University, and then reimburse themselves from the 529. Apparently, the 529 to university channel can have some challenges (payments getting lost, delayed, etc & thus delaying registration & enrollment for kids). Our current plan is to charge everything on our credit card (for rewards/points) & then reimburse ourselves through the 529. Anyway, just another thing to think about based on the guidance from your university, as well as their fees (if any) on paying via cc.

Jules13

  • Bristles
  • ***
  • Posts: 250
    • January Girl
Re: 529 plan use order - am I missing anything?
« Reply #2 on: May 24, 2024, 12:31:17 PM »
Ok, thanks.  I'll look into that, regarding paying the Univ and/or reimbursement.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 6001
  • Age: 55
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: 529 plan use order - am I missing anything?
« Reply #3 on: May 24, 2024, 04:54:57 PM »
I understand the inconvenience of dealing with a 529 that is owned by someone else.

Two things to consider:

1.  There is now the ability to roll over up to $35K of excess 529 funds into the beneficiary's Roth IRA.  It's a pretty nice deal.  One of the requirements, though, is that the 529 account be in existence for 15 years as of the date of the rollover.  If this is of value to you, you might look to see when the various 529s were opened to see when the 529->Roth rollover option would become available.  If your parents started theirs before you started yours, it might be worth dealing with the inconvenience.

2.  If your Dad is amenable, you could discuss rolling the 529 money from his 529s into your 529s.  Generally this is a tax free event (doublecheck with your Dad's 529 plans to be 100% sure).  It also reduces the number of accounts and generally simplifies things, and would help you avoid the inconvenience factor.  However, if his 529s were older than yours, it may delay or impact your ability to do the 529->Roth rollovers noted above.

And I agree with the other poster.  What I typically did was get the bill from the university, distribute that exact amount from my kid's 529 into my checking account, wait for that transfer deposit, then pay the university directly.  Worked fine.

In one case involving my Dad's 529 for my niece, I did do a direct transfer to the university for her bill (as my Dad's POA).  It was a bit convoluted because I had to get the correct mailing address and university account number for her, put that into the 529 website, and then I was in the dark until the payment arrived and got applied.  But it all went just fine in the end.

Jules13

  • Bristles
  • ***
  • Posts: 250
    • January Girl
Re: 529 plan use order - am I missing anything?
« Reply #4 on: May 27, 2024, 04:19:04 PM »
Interesting about rolling over a 529.  I didn't think you could do anything like that.  I will look into it.  He might be agreeable to that since then he wouldn't have to deal with the payment to the University.  Thanks.  Though, I'm pretty sure his has been open longer than mine, so I'll look into that too.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 6001
  • Age: 55
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: 529 plan use order - am I missing anything?
« Reply #5 on: May 27, 2024, 04:55:21 PM »
Interesting about rolling over a 529.  I didn't think you could do anything like that.  I will look into it.  He might be agreeable to that since then he wouldn't have to deal with the payment to the University.  Thanks.  Though, I'm pretty sure his has been open longer than mine, so I'll look into that too.

I've done both types of rollovers and they work just fine.  The 529->Roth rollover is a new law as of 1/1/2024, and there are a number of restrictions that you have to meet.  There are articles out there now about it.

skiersailor

  • 5 O'Clock Shadow
  • *
  • Posts: 38
Re: 529 plan use order - am I missing anything?
« Reply #6 on: June 02, 2024, 05:03:48 AM »
Note that in using leftover 529 funds for Roth IRA contributions:
  • The recipient still has to have earned income at least equal to the amount of the Roth contribution.
  • The 529 money displaces other potential Roth funding - it does not add to it.  In other words, the recipient is still limited to the normal maximum Roth contribution.
 
So if the beneficiary is already able to make the maximum Roth contribution without using 529 money they may be better off keeping the remaining 529 money in the 529 account - at least until they are positive that they will not be attending graduate school.  Even then, it still may be better to keep the 529 funds intact if they think they may use the funds for their own children.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 6001
  • Age: 55
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: 529 plan use order - am I missing anything?
« Reply #7 on: June 02, 2024, 10:17:43 AM »
Note that in using leftover 529 funds for Roth IRA contributions:
  • The recipient still has to have earned income at least equal to the amount of the Roth contribution.
  • The 529 money displaces other potential Roth funding - it does not add to it.  In other words, the recipient is still limited to the normal maximum Roth contribution.
 
So if the beneficiary is already able to make the maximum Roth contribution without using 529 money they may be better off keeping the remaining 529 money in the 529 account - at least until they are positive that they will not be attending graduate school.  Even then, it still may be better to keep the 529 funds intact if they think they may use the funds for their own children.

Both true; there are other constraints as well that anyone looking to do this would be wise to read up on.

Regarding the second point, though, I have three offspring in their 20s and just starting out in their careers.  It's true of all three of them that the $7K Roth contribution might be something they want to do and could do, but they're making tradeoffs between that and house down payments, emergency fund savings etc.  So doing the 529->Roth is a nice boost.

I suppose it helps in my case that none of my offspring are interested in graduate school or offspring of their own (at least for now but they seem fairly decided).

jeninco

  • Magnum Stache
  • ******
  • Posts: 4491
  • Location: .... duh?
Re: 529 plan use order - am I missing anything?
« Reply #8 on: June 02, 2024, 03:49:11 PM »
We've rolled other college savings plans into the 529s that we control: once you've finished the necessary paperwork, it's pretty smooth, and there shouldn't be a problem rolling an existing education account into a "like" account.