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Hi Paul, nice to see your interest in 529 plans. For many people they are the best way to save for college. Your posting demonstrates how different these things are, however, and people should be like you and take the time to understand them.

According to info provided for the Fidelity Unique plan, I (as participant) can fund these to the limit of my $10K per year per person FET gift exclusion, but the contributions count toward my $1MM lifetime GST exclusion.

Not quite. Your contribution qualifies for $10,000 GST annual exclusion just as it does for $10,000 annual gift exclusion.

If a benficiary fails to use his entire account for education, the logical next beneficiary would be a sibling or his or her children. If the beneficiary is the next generation, is the GST again counted against my GST limit?

Once you've made the contribution you are out of the loop (limited exception applies if you make the 5-year election and die too soon). The old beneficiary may have a gift tax event on the switch to new beneficiary, and GST event if new beneficiary is two generations below old beneficiary. Annual exclusions and 5-year election are available to old beneficiary.

If the beneficiary fails to use his entire account but has no siblings, can I name his unborn child as beneficiary?

No. But why not just wait until the child is born before making the change?

If the beneficiary fails to use account but has no siblings, the rules do not specifically allow naming his first cousin as a beneficiary, but sometimes aunts and uncles are listed, and grandparents are allowed. Can multiple beneficiary changes be used to transfer benefits to the cousin (with paying penalty and income taxes)? Are there GST implications (or income tax implicatiouns) in these multiple transfers.

The quick answer is "yes". The more responsible answer is that there are a number of considerations that may affect the quick answer.

Can a sibling thus have two plans?

Yes, my two kids are beneficiaries in plans in at least 17 states, and with multiple accounts in some states. You need to be aware of how the maximum contribution limits are applied however.

If a successor participant inherits the account, I am advised no income taxes are due unless the funds are distributed to him. Do GST credits pass to successor also, or are they retained in my estate?

Successor account owner is out of the loop as described above (unless of course it's your spouse and you've made split gift election and 5-year election).

By setting up enough of these accounts and grossly overfunding them, renaming beneficiaries for generations to come, it would seem possible to set up a long term family education plan--almost a perpetual trust. Do tax laws prevent this in any way?

Good observation. The states generally do not like to see their plans misused and the IRS will cry foul in the future if they perceive abuses. But there is definitely a lot of flexibility in the current rules.

Most 529 Plans have a $100K limit. Is this total asset value or is it total contributions?

Depends on the state. Could be either.

The Fidility plan operates under the laws of New Hampshire which has no income taxes. Are there state tax liabilities in any of this?

You need to be concerned with the state of residence, not the state where the plan is located (California had me worried for a while, however). Most states will piggyback on the federal treatment, but check with your tax adviser if you are uncertain.

Anybody other than Fidelity have plans with good investment performance?

I track investment performance on my web site at Feel free to have a look.

Hope this was helpful to you and I wish you good luck with 529 plans.


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