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Moving 529 account to in-state to get the tax deduction?

Moving 529 account to in-state to get the tax deduction?

Old Sep 3rd 2020, 6:00 pm
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Default Moving 529 account to in-state to get the tax deduction?

Hi,

My wife and I recently relocated from California to Georgia. We currently have a two year old and a newborn. Two years ago, we set up a Nevada/Vanguard 529 plan in my son's name, knowing that we could pass any remaining money down (not spent by him) to subsequent kids. There is no tax deduction for 529 plan contributions in California so that was never a consideration; just how stable the 529 plan was and who was the administrator.

I recently read about GA HB 266 that increased the state tax deduction for 529 contributions in 2020 to $8,000 per kid (married, filing jointly) **if** you contribute to the Georgia 529 Plan. A ~5% state tax deduction on an $8,000 contribution is $400, which isn't massive but it's not nothing either. Now that we have two kids, we could set up a 529 in our second child's name, contribute $8,000 to that account and get a further $400 back in state taxes.

Questions for folks on the forum:
  1. Has anyone ever moved a 529 out of one state plan account to an in-state 529 plan in order to take advantage of the state tax deduction? Is it as easy as moving a 401K or IRA, for example?
  2. Is it wise to set up a 529 account in each kid's name or is having one jumbo account for all of our kids okay? We probably won't hit the Nevada/Vanguard $300,000 contribution limit over the next 20 years (that's ~$18,000 per year for the next 16 years based on our two year old's age), but it's possible if we were to put all of our kids' 529 contributions into a single account plus have a few more kids. We're planning to provide as much as we can in order to support our kids to study STEM or medicine at university, which will entail 5+ years of study for each of them (and obviously much more if they go into medicine). If any of the kids get scholarships, monies equal to the amount of their scholarships will be withdrawn from the 529 plan(s) to go towards their car/wedding/house/other fund.

Thanks,
Jon
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Old Sep 4th 2020, 3:00 am
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Default Re: Moving 529 account to in-state to get the tax deduction?

I don't have kids, but currently manage 3 529 accounts for different members of the family.

Here's my understanding:
1. No, but a 529 roll over is allowed with some certain rules. Intra-state is covered by this.
2. For a 529 you name a beneficiary of the account. I am fairly certain the college (or other) bills need to be in the beneficiary's name. You could re-balance the multiple accounts by moving money between them. After all, you're the participant and they're the beneficiary.
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Old Sep 9th 2020, 8:51 pm
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Default Re: Moving 529 account to in-state to get the tax deduction?

Hi, I don't *think* your 529 plan needs to be in-state to get a deduction, do you have a CPA? It's worth checking with them. Our plan is out of state and I think our home state gives us a deduction.

I know, ask your accountant, not very helpful! I did want to say don't plan on using that money for car/wedding/house/other fund. 529 plans are designed for college and can't be used for non-education purposes without paying a 10% penalty + the income tax you haven't been paying on the interest gained (you don't pay capital gains taxes in the 529 plan). You can put the money in someone else's name to use for education without those penalties but your options are somewhat limited.

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Old Sep 10th 2020, 1:30 am
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Default Re: Moving 529 account to in-state to get the tax deduction?

Originally Posted by princessconsuela View Post
Hi, I don't *think* your 529 plan needs to be in-state to get a deduction, do you have a CPA? It's worth checking with them. Our plan is out of state and I think our home state gives us a deduction.

I know, ask your accountant, not very helpful! I did want to say don't plan on using that money for car/wedding/house/other fund. 529 plans are designed for college and can't be used for non-education purposes without paying a 10% penalty + the income tax you haven't been paying on the interest gained (you don't pay capital gains taxes in the 529 plan). You can put the money in someone else's name to use for education without those penalties but your options are somewhat limited.
I read the Georgia 529 bill and read it to say that the Georgia 529 state tax deduction was only applicable to the in-state 529 plan.

As for using the funds for other uses, I was only planning to do that *if* any of my kids get any scholarships. If they do, we can withdraw money from the 529 equal to those scholarships without any penalty.
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