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- Oct 13, 2010
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DD2 has started her senior year, and there's still going to be money in the 529 account. I think I've decided to close the account, pulling out the remainder so I can pay-off her loans, as I promised (the only reason she got the loans was because they were interest-free).
All along I've been pulling out the difference between the published school budget and the grants and scholarships. This money comes out completely tax-free. So say the budget is 25K and there's 15K in grants and scholarships. 10K comes out tax-free.
So far, I have not pulled out any money where tax was due on the gains, but this year, I think I'm going in that direction. So for the remaining $15K, tax will be due on the gains. But I will have it come-out in DD2's name, so it won't alter my O-MAGI. She will show that as her only income in 2016, so pretty painless.
The last kind of money is that which is higher than the school budget. So let's say there is $30K in the 529 account, 10K comes out tax-free, 15K comes out paying tax on the gains, and the last 5K you not only pay tax on the gains, but also a 10% penalty since it's more than what the price of school was. I'll need to read-up, but I don't think the earlier years' school budget money "builds-up", so a $500 penalty might be in the cards (on my daughter's taxes).
I know it would be trivial to leave the account open and just write a grandchild's name in as the beneficiary, but I would like to have plenty to pay-off DD2's student loans and purchase her a car.
Anyway, although I'm usually the one answering 529 questions here, but I thought I'd throw this plan up here to see if anyone had experience with this stuff, or if there's a hidden wrench in the works.
All along I've been pulling out the difference between the published school budget and the grants and scholarships. This money comes out completely tax-free. So say the budget is 25K and there's 15K in grants and scholarships. 10K comes out tax-free.
So far, I have not pulled out any money where tax was due on the gains, but this year, I think I'm going in that direction. So for the remaining $15K, tax will be due on the gains. But I will have it come-out in DD2's name, so it won't alter my O-MAGI. She will show that as her only income in 2016, so pretty painless.
The last kind of money is that which is higher than the school budget. So let's say there is $30K in the 529 account, 10K comes out tax-free, 15K comes out paying tax on the gains, and the last 5K you not only pay tax on the gains, but also a 10% penalty since it's more than what the price of school was. I'll need to read-up, but I don't think the earlier years' school budget money "builds-up", so a $500 penalty might be in the cards (on my daughter's taxes).
I know it would be trivial to leave the account open and just write a grandchild's name in as the beneficiary, but I would like to have plenty to pay-off DD2's student loans and purchase her a car.
Anyway, although I'm usually the one answering 529 questions here, but I thought I'd throw this plan up here to see if anyone had experience with this stuff, or if there's a hidden wrench in the works.