<p>I have an ESPP (Employee Stock Purchase Plan) at work and I also have some company stock that will be released to me each year on the next few years on my anniversary date. I have no interest in holding this stock long-term and currently plan to cash everything in as soon as it's eligible for long-term capital gains tax.</p>
<p>I have a college sophomore and a high school junior who have 529 plans. </p>
<p>I was wondering if there's any way to avoid/reduce the capital gains by moving the stock into the 529 before selling? I have never heard of this, but I caught part of a financial talk show on the radio and I believe they were discussing something like this.</p>
<p>If there's any way to do this please let me know.<br>
thanks!</p>
<p>You can’t. All contributions to 529s must be in cash, so you’d have to sell your stock, pay the capital gains tax on it, then make your 529 deposit.</p>
<p>On a related note, just because you can buy your own company’s stock at a discount doesn’t mean you should. The stock must fit in your portfolio. You might like your company, but do investors like it? It’s stock may not perform well.</p>
<p>You can eliminate that capital gains but donating the stock to a 503 qualified charitable organization…but that doesn’t help you pay for college. I would recommend that you DON’T cash in this stock until the kids are done with school as it will look like income on your taxes and may hinder financial aid and scholarships for your kids…unless you really need the money to pay bills or whatever.</p>
While I agree to hold the stock it must fit in one’s personality when I had the option I always bought the maximum amount I could at a discount … and in almost all cases I also immediately sold … essentially I took the discount amount and paid regular income taxes on the gain (since they were short term capital gains) … and if the cash flow delay is manageable I can’t see a reason to turn down the money from the discount.</p>
<p>LongPrime, don’t understand your admonition at all. OP is simply asking whether the tax laws allow him to deposit stocks in his 529, a very logical question for attempting to minimize taxes, thereby maximizing available assets, the same way anyone with half a brain attempts to do (even you, presumably). That hardly makes him greedy, or a skinflint.</p>
<p>i understand completely what is trying to do, since we went on the same path. We came to the conclusion as Op, will, that be glad in having the situation that he has and that he can use that his good fortune to his advantage. He’s just not there yet. </p>
<p>one only needs to go the the financial forum to see the other side.</p>
<p>You can gift tax-free up to $13,000 per year to each child.
If the stock is in a joint account with your spouse, you can gift $26,000 a year to each child. Transferring stock without incurring taxes is allowed and easy.
If you’re receiving or going to receive financial aid, that changes the equation.</p>
<p>There is another on-going thread along similar lines, and I am a firm believer that one should not get tax or legal advice from an Internet forum.</p>
<p>But I just want to clarify what you are saying.</p>
<p>I am supposing that you’re saying one (or both) of the following:</p>
<p>(A) A parent can give a $13,000 gift to a child (per year) without any tax ramifications (for parent and child?).</p>
<p>(B) A parent can transfer stock ownership worth $13,000 to a child (per year) without any tax ramifications (for parent and child?).</p>
<p>But neither of those statements, even if true, directly answers the question at hand, which I think is …</p>
<p>529 plans only accept “cash” deposits (“cash” in this case meaning checks, etc.).</p>
<p>If a parent owns a stock (or stocks) worth, let’s say $50,000 and wants to use it for their child’s 529 college fund account – the only way to do that is to sell the stock and pay 15% capital gains tax, leaving $42,500 left over to actually go into the 529.</p>
<p>If you are thinking of gifting stock to your children, make sure you understand how the kiddie tax works, and how student vs. parental assets are assessed for FA purposes.</p>
<p>GolfFather, your calculation assumes a zero basis in the stock. Capital gains tax is not due on the entire $50,000, only the gain over the purchase price. (So if the purchase price was $40,000, tax would be due on $10,000 gain, leaving $48,500) </p>
<p>The OP has some ESOP and some that sounds like options(?), so I am not sure what his basis would be, but for your example, the tax bite is not so bad.</p>
OP has ESPP (Employee Stock Purchase Program) shares and it sounds like maybe some RSUs (Restricted Stock Units).</p>
<p>ESPP plans let you have your company withold money from your paycheck, and every six months you buy stock with that money at a 15% discount. Some plans use the price on the purchase date, some use the lower of purchase date price and the price 6 months earlier.</p>
<p>If you sell right away the difference between what you paid and the price on the date of purchase is taxed as regular income. If you hold it long enough for a qualifying disposition some of that difference can become LTCG.</p>
<p>With RSUs you will immediately be taxed on the full market value of the shares as regular income when you vest. There’s no way to convert any of the initial gain to LTCG. My company sold enough shares to cover the taxes automatically.</p>
<p>Just a quick correction to some points here:</p>
<p>Someone said that if the stock is in a joint account, a set of parents could give $26,000 worth of stock to each kid per year tax-free. Lots of that statement is slightly wrong.</p>
<p>First, the annual exclusion from gift tax is now $14,000/year, not $13,000, per donor per recipient.</p>
<p>Second, a married couple can elect to split their gifts to third parties even if in fact the gift came exclusively from one of them. So if one parent has the stock all in her name, she can give $28,000 worth of stock to each kid, and she and her spouse can elect to treat it as though each had given the kid $14,000 in stock. (That’s assuming no other gifts. It’s also assuming, despite my careful neutral language, that the couple is a man and a woman, since that’s still the only kind of couple whose marriage will be respected for tax purposes.)</p>
<p>Even if the couple gives a kid more than $28,000, that doesn’t mean they will have to pay any gift tax. They will have to file a gift tax return, and the excess will apply against their lifetime gift limit (currently $5 million apiece). And under no circumstances would a gift of stock to the child be taxable to the child until the child sold it. If the stock was employment-related stock, under some circumstances even when the child sells it a portion of the income would go to the parent (regardless of whether the kiddie tax applies).</p>
<p>Finally, none of this really makes sense in the context of college tuition, because parents can make unlimited tuition payments on behalf of their children without gift tax consequences (or income tax to the kids).</p>
<p>But this particular stock in question (for us anyway) was originally an employee benefit that was transferred to us from child’s grandparent.</p>
<p>So, since our purchase price was zero, we pay the capital gains tax on the full value of the stock? Or, if not, how does that work?</p>
<p>
</p>
<p>JHS, yes, we can make unlimited payments to our child’s college.
But the money has to come from somewhere.
What I am (and I think others) are asking is:</p>
<p>Fact 1: We have x shares of a stock that is currently valued at $50,000.
Fact 2: The intent of this stock was always to help pay for child’s college education.
Question: How do we best turn this $50,000 worth of stock into tuition, dorm fee, meal plan payments etc.?</p>
<p>No idea for your particular situation. We have received mutual funds transferred directly from parents with the original basis intact, and inherited stock with our basis as the price on the day we inherited. I think you would need records from the grandparents, but I would not just assume zero basis.</p>
If you will be applying for financial aid, you need to look at the timing of the sale. What you <em>don’t</em> want to do is sell the stock the year before your kid start college, or while they are in college. Then you will be assessed on both the income portion (which will be a lot if your basis is really low) and as an asset as well.</p>