How are multiple plans for the same beneficiary handled? We have two for each of the kids (one owned by me, one owned by spouse for child 1; and one owned by me, one owned by spouse for child 2). Then grandparents also have an account for each of the kids.
Can these be consolidated before starting to take distributions for school payments for simplification? Or do you have to just draw down one account at a time?
How does distribution/school payment work? Do you pay school directly out of 529? Or pay from personal account and then pay yourself with 529?
All new to this. Thank you.
Yes, multiple accounts for the same beneficiary can be consolidated (rolled over). The particulars will depend on the rules and procedures of the account administrators. Or, you can keep separate accounts and withdraw from any account whenever you want; they do not have to be drawn down one account at a time.
Distributions from 529 accounts can be sent to the account owner (the earnings portion of any non-qualified amount will be reported under the SSN of and taxable to the account owner), to the student/beneficiary or directly to the school (under these last two scenarios, the earnings portion of any non-qualified amount will be reported under the SSN of and taxable to the student/beneficiary). You or the student/beneficiary can pay qualified expenses with your own money and then be reimbursed by the 529, you can take a distribution from the 529 in anticipation of paying qualified expenses later, or you can have 529 funds sent directly to the school. Whatever works best for you and the student in terms of simplicity, convenience and financial considerations. Just keep good records, and you should pay qualified expenses and take 529 distributions for the corresponding expenses in the same year.
See Chapter 7 here for more information: 2023 Publication 970 (irs.gov)
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Thank you!
I believe everything BelknapPoint said is correct (and comprehensive) but I think even if you can rollover 529s into one account, it is a very bad idea to do so. A rollover may have gift tax consequences. Moreover, rollovers have a 12-month clock, and if you run afoul of this, a whole rollover could become an unqualified distribution, with tax and penalty consequences. Just don’t mess with rollovers unless there’s a really good reason and you fully understand the rules to avoid pitfalls. Just leave the accounts as they are, and spend from them separately.
By the way, if you ever need to change beneficiary, that’s quick and easy to do, and doesn’t have the abovementioned pitfalls. (Also, get ideas from internet strangers, but check the rules yourself.)
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From those who’ve BTDT – What changes did you all make with allocations as your kids were in college or months away from paying that first tuition bill?
Because you can only make allocation changes 2x a year I’m always hesitant to rebalance. That said, with the market going strong, and first tuition payment months away, I am thinking of reducing risk.
I used an age-based risk strategy until a year or so before the student entered college, when I switched to the guaranteed investment option (very conservative, will not lose money) throughout the college years.
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I won’t suggest what you should do, but note that you can think of all accounts (529, 401k, IRA, HSA etc) as just one whole portfolio, instead of looking at 529 in isolation.