529 plan question

10 replies [Last post]
suffolk08's picture
Offline
Joined: 2007-02-14

I have a pretty general question that I can't seem to find the answer too so I was hoping someone could help me. Say you a 529 plan and the beneficiary decides not to go to college, is it true that the money can sit there until the custodian on the account retires at which point they can take it out penalty and tax free??? My professor told me this, but it seems too good to be true...My guess is that you can only take it out penalty free

Greenbacks's picture
Offline
Joined: 2004-12-21

If the beneficary does not go to school it is there money at age 30. They can then pass it to one of there kids tax free for there college costs. If the first beneficary dicides to take it out at age 30 it is a  10% penalty.  
At least this is the way I understand it.

troll's picture
Offline
Joined: 2004-11-29

Greenbacks wrote:
If the beneficary does not go to school it is there money at age 30. They can then pass it to one of there kids tax free for there college costs. If the first beneficary dicides to take it out at age 30 it is a  10% penalty.  
At least this is the way I understand it.

 
There?  Where?

madabroker's picture
Offline
Joined: 2007-05-09

You have to just LOVE professors like that - do tell - name names, what university, etc.

Bet it's not Wharton.

I'm not a "referred advisor" since that's really all about Joe Hurley making some dough (in other words, there's a buy-in and an annual fee) but he really does have a pretty comprehensive website devoted to 529 plans at savingforcollege.com

Name names, please!

troll's picture
Offline
Joined: 2004-11-29

madabroker wrote:Bet it's not Wharton.
Speaking of Wharton.  How many of you have attended the Securities Industry Institute at Wharton?
You may want to look into it.

anonymous's picture
Offline
Joined: 2005-09-29

Suffolk, you are getting incorrect information from both Suffolk and Greenbacks and correct info from Madabroker and a useless post from DAtoo (Putsy) and your guess is not correct.
The money belongs to the owner of the 529 plan.  He can use it for any purpose that he would like.  If that purpose is anything other than higher education expenses for the beneficiary, the account will be taxed as inwine and a 10% penalty will apply. 
In this case, even if the beneficiary goes to college, the account owner would not have to use the money for college.  The money will continue to grow tax deferred and when used for retirement will be both taxed and penalized.
If the beneficary does not go to school it is there money at age 30. They can then pass it to one of there kids tax free for there college costs. If the first beneficary dicides to take it out at age 30 it is a  10% penalty.  
The age of the beneficiary has no relevance.  The beneficiary can't do anything with the money because they don't own it.  They can't pass it onto their kids and they can't take it out.  The owner of the account has complete control.  They can switch beneficiaries to somebody who is related to the previous beneficiary.  They can also withdraw the money and pay taxes and penalties or they can have the money be sent to the beneificiary who would have to pay taxes and penalties.
Interestingly enough, when the owner switches beneficiaries from, for example, his son to his grandson, it is treated as a gift from the son and could create gifting issues for the son despite the fact that the son never owned the money nor had control of it.
Don't use logic in trying to understand 529 plans.

troll's picture
Offline
Joined: 2004-11-29

Quote:
Suffolk, you are getting incorrect information from both Suffolk and Greenbacks and correct info from Madabroker and a useless post from DAtoo (Putsy) and your guess is not correct.

Well, seeing as I have never commented on 529 plans becuase I am not qualified to talk about them I suspect you don't know what may or may not be correct yourself.

anonymous's picture
Offline
Joined: 2005-09-29

You suspect that I'm wrong simply because you're not qualified?  Thanks for letting us know.

Dust Bunny's picture
Offline
Joined: 2007-05-07

Anon is correct on the 529.  The OP is probably confused between that and the rules for the Coverdell Savings account, which of course he should learn about by calling an 800 number at Vanguard and investing only in index funds.   No point in having an advisor explain the differences and tax ramifications of both plans and help you decide which one would be best for your own personal circumstances.

suffolk08's picture
Offline
Joined: 2007-02-14

so if the custodian keeps the money in the 529 account they can't withdraw it penalty free when they hit age of retirement?? 

anonymous's picture
Offline
Joined: 2005-09-29

You have your terminology wrong.   It is the account owner and not a custodian.  It would only be a custodian if the child was the owner of the account.
The owner can't withdraw it at retirement penalty free or tax free.

Please or Register to post comments.

Industry Newsletters
Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×