We are planning to do this for our S18 who will finish college next spring. We told all our kids that the 529s were theirs and they could have the remainder for grad school or whatever else. The other kids don’t need any of S18’s 529. And yes we’ve used it for various QEE. All their accounts are well funded. We are not talking about $180k of gains, though. I agree that avoiding taxes on that would be important! We’ve spoken to our financial advisor and the Fidelity 529 rep and have a plan for the dispersement.
@Twoin18 The Fidelity Investments 529 rep as well as our advisor told us that it must be withdrawn in same calendar year. I was hoping to leave it there for a few years in the event S18 decided not to go to grad school right away and was told no.
EDIT: This site talks about the timing. Seems some inconsistency but does seem to say that withdrawal must be before graduation (which negates the waiting for grad school decision option). A Penalty-Free Way to Get 529 Money Back
I am going to have to sit down with my accountant after May 15 and try to figure this out. For my D18 I still have a substantial amount left in her 529 and she is getting a full ride for law school. I could save it for potential use on D21 but based her merit money for undergrad, I think there will be enough in her own account for her graduate school. Also I kind of want to reward for D18 with giving her the money for her hard work that enabled the money to be left over to begin with.
Also I read somewhere (and I could be wrong) that if you give the money directly to the child the tax on the gains is based on their tax rate and not the parents.
Congratulations on all of the decisions the last few days! Do we still have any left who are stretching it out to May 3rd?
D21 committed to Boulder a while ago and she is still very happy with her decision. This week she got an email saying she was awarded a merit scholarship and was admitted to the honors program! I had seen a few others getting scholarships this week but I figured we were out of luck since she had already committed, definitely made her feel good to get that news.
That’s what I was thinking. My D has been driving for more than two years now (Including the time of her learner’s permit) complete with a driver’s ed class and driving instructor (required where I live). She has driven on our not-very- busy interstate within an hour of home and the rural roads around us but no complicated high-speed traffic
and I’d shudder to let her loose with a car in a place like LA without more guidance. Can’t imagine letting a rookie driver deal with LA alone after just a month or so learning to drive. In our state, you can’t even get a full license without doing one hundred hours of driving practice under supervision (of a parent, etc) spread out over eight months.
Yes that’s correct re the lower tax rate. However, whomever the 529 dispersement goes to is the person who must claim it. I tried to send a dispersement directly to my son for his rent last year and could not do it. I am the owner and he is the beneficiary. If the dispersement goes straight to the school, it’s considered going to the kid. Just double check so you know what the tax consequences are.
I am a big fan of St Olaf and vocal performance and math are among their very strongest programs. It sounds like an ideal match for him and it’s a kind gentle community which is likely to be a great place for a homeschooled student to transition to college life. I hope it is everything that he envisions.
Looks like you DO have to withdraw it the same year as the merit scholarship. Well, I guess that $ will either be spent on grad school or saved for the next generation. That’s still a great problem to have.
That article says nothing about non-qualified withdrawals, only qualified distributions to pay expenses. I think the edited comment above points to the dispute on this topic because the IRS has not specified any limitations or guidance.
The key issue is the interrelationship of kiddie tax and withdrawal date. Ideally you want to withdraw after your kid no longer has to pay tax on unearned income at kiddie tax rates. Assuming they get a job promptly then they are likely to be providing more than half their support in the year they graduate and their tax rate will be lower because they only have half a year’s earnings. So that is likely to be the sweet spot for withdrawal of the excess.
For my son who didn’t go to colllege and at 24 I think it’s safe to say he still has no plans to, most of the money is still sitting there. The pre-divorce money has already been moved to my youngest kid and we then each paid him in cash (over 4 years) the amount that was in the 529 as of a certain date. There is one 529 that I hold from post divorce that is still in his name that I will move to one of my other 3 kids eventually and that I too will ultimately gift him the equivalent value in cash. This avoids cashing out the 529 and dealing with any tax on gains or tax rate issues etc. A gift tax has to be prepared if it’s over the annual gift tax exclusion amount of $15k/person (but $30k for each you and your spouse) but that’s not a big deal and doesn’t cause tax consequences.
Does her full ride for school include all her books and all of her rent and board? If it doesn’t then that’s how you can allocate some of those funds. It can also stay in her name to then later move to her own kids at no tax consequence to her whatsoever and like how we did you can just gift her the cash. Double win there.
Ultimately there is no reason to pay a penalty (even paying the taxes on early withdrawal or on gains is a sort of penalty) when there are so many legal ways to avoid such.
Congratulations on all the fabulous decisions. Hoping things are so much better for our kiddos in the fall.
Anyone else have a kiddo burning the midnight oil? D has AP physics C: Mechanics at 12:00 and
physics C: Electricity and Magnetism at 2:00.
Grinding out electric current, capacitor and magnetism is hurting her brain.
Yes. My S’ school is totally grinding him. I’m hoping they ease up after APs (mandatory at his school). Just found out they might get a senior trip to Universal Studios. Not Disneyland, but cool and he’s very excited about it. Fine with missing prom. His HS has few girls.
That was my comment earlier in the thread. You should wait until your D is not covered by kiddie tax. If she is going direct to law school that probably means waiting until she turns 24 (because she won’t be providing more than half of her support). Remember the law school full ride is still merit money so that will qualify for the exemption. Also when using 529 money for room and board during that time you can use the full listed COA allowance for qualified withdrawals if actual billed costs are less.
Hi all, can’t wait to hear about all the late final decisions until the wait-list bar is closed…I know the bouncer wouldn’t let me sneak in so please keep us updated! I was thinking about all the kids and parents agonizing over decisions yesterday and today. My D is funny…she can either be completely decisive (as she was with her ED choice) but if there isn’t a 100% clear choice In her mind she will agonize ad nauseum comparing apples to oranges until the bitter end. She almost drove me crazy a few days ago trying to decide on a graduation dress (which will hardly be seen under the cape) so I can only imagine the angst if she were between colleges. If she hadn’t been so taken with one school last fall we would have surely been among the “11:59 folks” last night!
Yesterday was still a sort of rite of passage here, as W&M released their “Tribeguide” for new students…info about housing, class registration, etc and D filled out her housing application (coordinated with her future roommate to ensure they’re placed together). She has not had college choice angst, but a little roommate angst. She sought and lost three potential roommates…one she texted for weeks before gettting up the nerve to ask the girl to room with her…said girl had been asked by someone else just two days before (But it’s all good because D is still communicating a lot with her and glad to have another person she feels she knows on campus). She brushed herself off and found another, who reluctantly told her a week later she had made the hard decision to commit to UVA! All good, again, as they are still texting quite a lot. So D found yet another roommmate. This girl had also been an ED admit, so D felt all set…until the girl regretfully told her she had to get out of her ED agreement for financial reasons. D was upset, but realized she felt more sorry for this girl (who really, really wanted to go to W&M) than for herself. At this point I said just to go lottery. D didn’t mind a random match except that she didn’t want to wait until July to get to know her roommate. Being an only child, I think she’s just so excited about this. She is usually a reserved person, though, NOT the one to make the first move in any social situation so I thought putting herself out there and dusting off from disappointment was a good challenge for her. That very evening she buried her trepidation, contacted a friendly-looking RD girl and only three days later asked her to consider rooming, to which the girl replied she was about to ask my D the same thing. Honestly, from what my D tells me, they seem the most compatible of any of the other pairings. They both sent in their housing applications yesterday and I hope this one takes (and that there is no waitlist hiding in the wings ;)) Please advise your kids on a waitlist not to pick a roommate yet!
In other respects, life is opening up here. My two weeks after immunization was on Thursday, and my D’s “liberation day” (as I think of it) will be on Tuesday. One of her best friends has a great part-time job at a mom-and-pop deli/ice-cream parlor (Right now just carry-out and patio seating) and there is an opening…she recommended my D to the owner. Since we’re all vaccinated and COVID rates are now very low here and vaccination clinics going gangbusters I couldn’t say no. The year + of terrible isolation seems to be over. My D was so excited about the job she woke me up this morning to look over the application before hitting “send”.
Gosh, beautiful day! I’m going out to pot the annuals for my porch! Hope you all find something fun to do!
I’m so thankful our school gave the kids a choice - so this week he has Mechanics tomorrow. They aren’t taking E&M until the Administration 2 Date. They have no idea how lucky they are to get that extra 3 weeks. I always thought it was stupid to have the two tests the same day, especially when there was always a rush to get in the material for E&M in. I was talking to the teacher who teaches Physics C where I work and he said that material in general is extraordinarily hard as it is and some kids just don’t grasp it as well as others. That school is doing both Mechanics and E&M during Admin 2 but even then they’re not on the same day which is soo much better. So on that, good luck to your kiddo @TVBingeWatcher2!
I think mine has AP Stats the same day or day after E&M but I think he has found that class to be easy and doesn’t care if he doesn’t get a 5 since it doesn’t really mean anything in terms of credit needed or not at Michigan other than us paying $3k more/semester one semester sooner.
His AP Chem is the other one this week and about 6 weeks ago I think the teacher finally took a deep breath and step back when she realized she was not at all behind and that many schools were not going to get through the material. I think he finally relaxed when he realized he didn’t need to get a 5 and just a 4 would do. So in our house the Physics are the ones he really needs to get those 5’s. The problem with my cocky stinker is he hasn’t hit a wall before with AP Exams (has always gotten a 5) so I don’t think he knows that it isn’t always as easy as he thinks and Physics is the worst. So we’ll see how he feels tomorrow afterwards lol. It may be the wakeup he needs for that E&M in 3 weeks. Worse, their last day is May 17 for seniors so he has to come back a week later just for the AP Exams lol.
@natatouille I find that awful that they make AP Exams mandatory. What happened to the joy of learning? Ours have never been mandatory and I’ve only had my kids take an AP class if they were interested in the material or if it was the next course in their sequence. Not to race to get in as many AP courses or tests. Ridiculous. Where I work, one of my jobs is proctoring tests and the head administrator told me this year tons of kids are cancelling their AP tests. Teachers just didn’t get as far as they needed to, colleges aren’t taking those courses, kids who have stayed remote (not many) aren’t really prepared - mainly because they’ve pretty much been cheating all year anyway, etc. Kind of sad because this school is a Top 10 school in IL (per the new USNWR rankings) but it is what it is.
That said btw, anyone who had to pay for AP Exams (I know our school already told us this ages ago) but if your kid wants to cancel taking the exam it’s coming down from College Board apparently that the school has to give you a refund. So if your school is refusing to, you should try taking it up directly with College Board.
