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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Gift to 529 plan Date: 10/6/2012 11:30 AM
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Hello:

I have a 529 plan for my son. He is the beneficiary of the plan, and I am the account owner (fidelity refers to me as the participant on my statements).

Fidelity requires checks to be made out to Fidelity when depositing money into the account. They don't seem to have an easy way for family members to make contributions to the plan (such as Connecticut's CHET plan).

My parents want to make a gift to the 529 plan to fall within their annual gift limits. Can they write the checks out to "Fidelity", or should they make the checks out to my son's name, and then I need to open a custodial checking account for the single purpose of depositing these checks, and then writing checks from the custodial account to the 529? I'd rather not go through the hassle of opening an account and having to keep track of ANOTHER checking account if I don't need to.

Additionally, my parents do not want this gift to be to me (they want to retain the ability to make gifts to me should they chose to)

Thanks
william
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116746 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 12:41 PM
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Fidelity requires checks to be made out to Fidelity when depositing money into the account. They don't seem to have an easy way for family members to make contributions to the plan (such as Connecticut's CHET plan).

Seizing on the word "seem" I'm going to suggest you work your way up the food chain at Fidelity. This is silliness beyond the norm I've come to expect from financial "service" providers. It may be that you've just not found the drone who knows how to do it.

Phil
Rule Your Retirement Home Fool

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Author: CheersSRX One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116747 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 2:36 PM
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Have you spoken to Fidelity? I suspect this is far easier than it may seem, right now. In 30+ years of dealing with Fidelity, I've yet to speak with a representative who did not know how to get things done. This seems like an easy one; I'd be surprised if one phone call didn't get you the right, and easy answer.

Perhaps I'm oversimplifying, but why wouldn't you (or your parents) just write a letter, instructing Fidelity to deposit the enclosed check into the following account: your son's name, account number, etc. Or better yet, take the check to a local Fidelity office, if there is one near you, and speak to a human being, and give him/her the instructions. Perhaps even with a letter from your parents in hand.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116748 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 5:33 PM
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wrjohnston91283: "I have a 529 plan for my son. He is the beneficiary of the plan, and I am the account owner (fidelity refers to me as the participant on my statements).

Fidelity requires checks to be made out to Fidelity when depositing money into the account. They don't seem to have an easy way for family members to make contributions to the plan (such as Connecticut's CHET plan).

My parents want to make a gift to the 529 plan to fall within their annual gift limits. Can they write the checks out to "Fidelity", or should they make the checks out to my son's name, and then I need to open a custodial checking account for the single purpose of depositing these checks, and then writing checks from the custodial account to the 529? I'd rather not go through the hassle of opening an account and having to keep track of ANOTHER checking account if I don't need to.

Additionally, my parents do not want this gift to be to me (they want to retain the ability to make gifts to me should they chose to)"


Contrary to the other two respondents, I do not think you can do what you say you want to do.

You own the 529 plan. A gift to the 529 plan is a gift to you, NOT your son. Owners can always withdraw funds from a plan.

If the gift is to your son, then you would need to open another 529 plan account in which your son was both the owner and the beneficiary.

Putting your son's assets into your 529 plan is converting his assets.

Regards, JAFO

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116749 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 5:36 PM
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PS - sorry for posting over my own prior post, but your parents could open their own 529 plan account, in which they were the owners and your son was the benficiary.

And, unless the rules have been changed, they actually can accelerate up to 5 years of gifting to your son into one year, as long as they file the appropriate tax paperwork.

My MIL opened 529 accounts for each of her grandchildren.

Regards, JAFO

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116750 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 5:44 PM
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I can't comment on whether or not contribution to the 529 plan is a gift to you.

It might be reasonable to open a separate plan with them or your son as the owner.

Depositing funds is the easy part. The Fidelity form at the link below should be all that is needed.
http://personal.fidelity.com/accounts/pdf/genericdepositslip...

Since the end of year is approaching, gift limits might not be a concern. Each of your parents can gift the annual limit of $13,000 to you (annual total $26,000) and if you are married to your spouse (annual total of $52,000).

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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116752 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 6:42 PM
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You own the 529 plan. A gift to the 529 plan is a gift to you, NOT your son. Owners can always withdraw funds from a plan.

I was thinking the same thing to, but everything I read about them talks about the gift tax benefit of family members being able to contribute without gift tax concerns (within the limits) for the beneficiaries.

At the same time, I can change beneficiaries, so I could change it from my son to myself or my wife after the gift was made.

I wish the contribution limits were higher on educational savings accounts. I'd rather have much better control over the account and pick my investments and not have to worry about beneficiaries vs owner. I consider myself fairly well versed (I'm comfortable with stocks, bonds, options, have an IRA/401k and taxable accounts) in personal finance but 529's confuse me a great deal. I can't imagine how someone who isn't comfortable with investing would find a 529 easy to understand.

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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116753 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 7:03 PM
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You own the 529 plan. A gift to the 529 plan is a gift to you, NOT your son. Owners can always withdraw funds from a plan.

If the gift is to your son, then you would need to open another 529 plan account in which your son was both the owner and the beneficiary.

Putting your son's assets into your 529 plan is converting his assets.


I looked into this some more. Fidelity had two options when I opened the account. Individual or custodial. They point out that individual is "This is the most common type of 529 plan account. It enables an individual to save for qualified higher education expenses for a designated beneficiary." I picked this one based on the description. Instead I should have picked custodial.

I'll open a new account as a custodial account.

Regarding depositing into the account, I haven't spoken to anyone there; but I'm basing it off of what I found on the website. Now knowing that it needed to be the custodial account, I'm much more comfortable having my parents write the checks to fidelity and me mailing them in with a deposit form for HIS account. My concern was them writing checks that get deposited into MY 529 for his benefit.

Thanks

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116754 of 121585
Subject: Re: Gift to 529 plan Date: 10/6/2012 11:23 PM
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wrjohnston91283:

<<<You own the 529 plan. A gift to the 529 plan is a gift to you, NOT your son. Owners can always withdraw funds from a plan.

If the gift is to your son, then you would need to open another 529 plan account in which your son was both the owner and the beneficiary.

Putting your son's assets into your 529 plan is converting his assets.>>>

"I looked into this some more."

Ok.

"Fidelity had two options when I opened the account. Individual or custodial. They point out that individual is "This is the most common type of 529 plan account. It enables an individual to save for qualified higher education expenses for a designated beneficiary." I picked this one based on the description."

Ok.

"Instead I should have picked custodial."

Perhaps.

"I'll open a new account as a custodial account."

This may not be issues for you, but at least two things for you to think anbout.

If you open it as custodial, then the money is your son's money.

1. When he hits the age of majority, he will control withdrawals, including choosing to withdraw for non-educational use, with tax penalty, and buying fast cars or women, or any of a host of other things.

2. If you might at all be expecting need based aid, the federal methodology uses 35% (IIRC) of chlild's assets and 5% (IIRC) of parents assets in calculating EFC (Expected Financial Contribution) toward school. If your parents owned the account, it would not even be reported on the FAFSA, and the account you own will count as a parent asset.

The FAFSA from and instructions and explanations ar available online if you wish to verify.

Regards, JAFO

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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116755 of 121585
Subject: Re: Gift to 529 plan Date: 10/7/2012 7:07 AM
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If you open it as custodial, then the money is your son's money.

1. When he hits the age of majority, he will control withdrawals, including choosing to withdraw for non-educational use, with tax penalty, and buying fast cars or women, or any of a host of other things.

2. If you might at all be expecting need based aid, the federal methodology uses 35% (IIRC) of chlild's assets and 5% (IIRC) of parents assets in calculating EFC (Expected Financial Contribution) toward school. If your parents owned the account, it would not even be reported on the FAFSA, and the account you own will count as a parent asset.


Good call outs. Thanks

William

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116756 of 121585
Subject: Re: Gift to 529 plan Date: 10/7/2012 9:23 AM
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I really wouldn't depend on Fidelity's web site for this kind of information. Check out www.savingforcollege.com for 529 information and www.fairmark.com for taxation of minors and custodial accounts(left side part the way down).

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116757 of 121585
Subject: Re: Gift to 529 plan Date: 10/7/2012 1:38 PM
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PS - sorry for posting over my own prior post, but your parents could open their own 529 plan account, in which they were the owners and your son was the benficiary.

If their parents are attempting to gift the money to remove it from their estate, it may not be a good idea for them to be the owners.

It doesn't sound like the parents would be applying for Medicaid in the next few years. Transfer of ownership of a 529 would need to be reported for Medicaid.

If the gift is significant, it is time for professional estate planning advice.

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Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116761 of 121585
Subject: Re: Gift to 529 plan Date: 10/8/2012 4:30 AM
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If their parents are attempting to gift the money to remove it from their estate, it may not be a good idea for them to be the owners.

If it's for reducing estate-tax purposes, I think it's a good idea for them to open their own 529 with grand-kid as beneficiary.

http://www.savingforcollege.com/intro_to_529s/are-there-gift...

However I don't know what the deal would be for Medicaid

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Author: rrmcpa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116795 of 121585
Subject: Re: Gift to 529 plan Date: 10/14/2012 9:18 PM
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However I don't know what the deal would be for Medicaid


A 5 year clock from the date of the gift would start running

After 5 years, that gift exempt the gifts from Medicare clawback. Same as any "gift" or payment to a family member without support for the elderly's living expenses.

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