529 related queries

Dear folks:

We are contemplating for a 529 for our baby... We reside in the CA... I recently came across this board & just with a few reviews has a wealth of information. As much as i would like to review thoroughly, time is a constraint.. I thought i will post my queries - to get faster & responses to current law's / policies...

1. Is there any income limit for parents to be able to qualify/ participate in the 529 plan.
2. We are thinking about initiating the plan with Iowa/ Virginia (as we heard from some our contacts have done it) - Even if we move out of CA to another state - can it still be used?
3. Is it possible to roll over from 1 state 529 plan to another state - any charges/ fees?
4. Assume that the child does not get educated here in the USA, can the funds be used for International education - Canada, France, Singapore, India ?
5. What are the annual contribution limits - per child/ couple/ family?
6. What is the process to take out the funds in the middle? Would there be any penalties?
7. Is it possible to have a 529 in more than 1 state? Are there any restrictions?
8. Is it possible to move $ across funds? Are there any restrictions/ charges?
9. What happens if I loose the $ in account? Are there chances of loosing?
10. Who holds control in a 529? What happens if a beneficiary is no longer part of the family (God Forbid !!)? Etc or something happens to the contributor?
11. Is there any age restrictions in using this 529 $ for the beneficiary or can it be used at any age?
12. What happens if there is left over’s & I am not able to use it?
13. Can I pass this to my brothers / sisters children? & is there any limitations? Can the funds be used for self/ spouse?
14. Can the 529 funds or any left over’s be used by the next generation?
15. Does having a 529 account mean, one cannot initiate a UTMA/ UGMA, Coverdall etc?
16. I was reading an article & vaguely recall a # $239,000 (Is this the total $ contribution or the $ balance on the account (attributed due to appreciation/ dividends etc).
17. Are (qualified/ nonqualified) withdrawals exempt from state taxes?
18. How does the process work? Should I prepay for the university & give a receipt to the 529 plan? or will the 529 pay the university directly? Will it cover only University fees/ registration/ dorm/ living? Clothing, Books?
19. Is the 529 applicable for school also? or Undergraduate/ Graduate/ PhD?
20. Is anyone aware of any state tax inventives for the state of CA?

These are the questions that strike me now... I would very much appreciate if folks on this board could share any knowledge/ information - so we can also get started.

I eagerly await.

Best Regards,
soab

Soad, you will get answers from others on this forum that are much more knowledgeable so I will just respond to the one I have knowledge on. There are others question I THINK I know the answer but would rather not throw a response back without having the confidence it is true.
19. Previously posted incorrect information. Sorry.

Good luck with your research and I'd suggest doing some research on your own even after you receive feedback here. A 529 plan can wait a few weeks while you gather the information you need to feel comfortable.
We wanted to have the plan established the day our baby was born but failed to realize a SS# would be needed so we had to wait 12 weeks which was good because that time allowed for further research. We decided on the Iowa plan and I can't comment on whether it is good or not since we've only had it open for 90 days. My reading led me to feel comfortable about the plan but there are many good plans.

clearly your child is important to you. congratulations on being so pro-active in making these decisions for education so early in life!!!

that said, while many can probably answer your questions here i have to say i will be surprised if they do. there are many reasons for this not the least of which is ... it is a bulletin board. as such, it does not lend itself to proper financial advising and planning. i will be amazed if anyone will answer your 20 questions and even if they did ... how can you rely on the answers? this place is 99.9% anonymouse!

we are usually quite happy and adept at discussing general questions and doing so in detail. but such detailed questions will bring you more grief than comfort. you really should consider hiring a professional in your area who can address IN DETAIL your specific issues.

so_ab - very general answers to your questions follow. This kind of information takes a while to tailor to your circumstances, and as such I've just provided the general response - follow up as you see fit.

1. Is there any income limit for parents to be able to qualify/ participate in the 529 plan.No
2. We are thinking about initiating the plan with Iowa/ Virginia (as we heard from some our contacts have done it) - Even if we move out of CA to another state - can it still be used?Yes
3. Is it possible to roll over from 1 state 529 plan to another state - any charges/ fees?Yes, it is possible. Fees will depend upon the plan chosen.
4. Assume that the child does not get educated here in the USA, can the funds be used for International education - Canada, France, Singapore, India ?The funds could be used for international education, but if the school is not accredited in the US, you'll pay a penalty and taxes on the growth of the fund if you withdraw funds for this purpose, which is not considered a Qualified Higher Education Expense (QHEE).
5. What are the annual contribution limits - per child/ couple/ family?In general, this is up to the plan, most have a limit of somewhere around $235,000. In order to maintain simplicity, most folks limit their annual contribution to the annual gift exclusion limit ($12,000 per child per parent), while some utilize the special 5-year front-load gift limit ($60,000 per child per parent).

Having said this, though - many states limit tax benefits to $10,000 per child per year. This will be different on a plan/state basis. If you're investing in an out-of-state plan, this won't matter to you.
6. What is the process to take out the funds in the middle? Would there be any penalties?You contact the plan to make a distribution from the plan. There would be penalties and taxes due on the growth in the account. Depending upon state tax benefits (and the plan you're using), there may be state taxes and/or penalties involved as well.
7. Is it possible to have a 529 in more than 1 state? Are there any restrictions?Yes, you may have 529 plans in more than one state. Primary restriction that I can think of would be the gift tax exclusions noted earlier. Otherwise there is no reason you couldn't have several states' plans.
8. Is it possible to move $ across funds? Are there any restrictions/ charges?Again, this depends upon the plan. If your question is "can I move money around to other funds/allocations within the same 529 plan?", then the answer is yes, but depending upon the plan, there are likely restrictions, such as rebalancing can only be done once every 12 months.
If your question is "can I move money around to other 529 plans?", the answer is yes, but I believe you need to move the entire account (roll over) when you do this, and I believe you are limited to one such rollover in twelve months.
9. What happens if I loose the $ in account? Are there chances of loosing?You have a smaller balance at the end of the month than you did at the beginning of the month. :rolleyes:

Of course there are chances of losing money - just the same as any investing activity. This of course will depend upon your investment allocation decisions. The more risky your choices, the more likely you are to lose (and gain) money.
10. Who holds control in a 529? What happens if a beneficiary is no longer part of the family (God Forbid !!)? Etc or something happens to the contributor?The owner of the account (you, your spouse, etc.) has control over the beneficiary of the account, and so you can change the beneficiary as you see fit. If something happens to the contributor (and by this I assume you mean the owner - yourself), hopefully you've chosen an appropriate contingent owner to manage the funds in your absense. Otherwise it is probably up to state statutes to determine management.
11. Is there any age restrictions in using this 529 $ for the beneficiary or can it be used at any age?No restriction on the age of the beneficiary.
12. What happens if there is left over’s & I am not able to use it?This partly depends upon why there is left over money: if this is due to the fact that the student received scholarships, then you are allowed to distribute an offsetting amount (same as the scholarship) from the 529 account, to the extent that the scholarship monies are used for QHEE.

If there are funds remaining in the account due to the death of the primary beneficiary, you are allowed to remove the funds from the account without penalty, however you must pay tax on the funds (I could be wrong on the tax part, somebody correct me).

If there are funds remaining in the account because the cost of school for that beneficiary was less than you anticipated, you have two choices: roll the funds over to a new beneficiary, or take a distribution and pay the tax/penalty. The rollover can be done to anyone you wish (doesn't have to be your child, can be anyone).
13. Can I pass this to my brothers / sisters children? & is there any limitations? Can the funds be used for self/ spouse?Yes - no limitation other than the gift limits mentioned above.
14. Can the 529 funds or any left over’s be used by the next generation?Yes.
15. Does having a 529 account mean, one cannot initiate a UTMA/ UGMA, Coverdall etc?No, a 529 account does not exclude eligibility to utilize those vehicles.
16. I was reading an article & vaguely recall a # $239,000 (Is this the total $ contribution or the $ balance on the account (attributed due to appreciation/ dividends etc).I don't know - I don't vaguely recall reading that article. The limits are going to be different for each plan.
17. Are (qualified/ nonqualified) withdrawals exempt from state taxes? Depends upon the plan. Most qualified withdrawals are exempt for most states' tax. Nonqualified withdrawals may or may not be exempt from state taxes - look at your state's tax laws and the plan information.
18. How does the process work? Should I prepay for the university & give a receipt to the 529 plan? or will the 529 pay the university directly? Will it cover only University fees/ registration/ dorm/ living? Clothing, Books?Again, take this up with your specific plan. In general, you can either pre-pay or make a withdrawal to pay the amount(s). Just keep good records. In general your QHEE will include tuition, fees and books. Room/board may also be covered, depending upon the plan in question.
19. Is the 529 applicable for school also? or Undergraduate/ Graduate/ PhD?Okay, what are you asking here? 529 plans are for post-high school education expenses.
20. Is anyone aware of any state tax inventives for the state of CA?No