Can I “Superfund” a 529 College Plan For My Grandchild?

Thursday, September 08, 2016

By Sarah Brenner and Beverly DeVeny
Follow Us on Twitter: @theslottreport

This week’s Slott Report Mailbag looks at “superfunding” a 529 college plan and goes a step further on a question answered in last week’s mailbag on IRA annuities. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

Ed:

As a grandmother, my understanding is that one can give up to $70,000 per grandchild in advance amounting to a 5-year contribution.

Does this advance payment have to be done within a one-year period? I made some payments to one of my grandchildren in 2015 for $15,000 and in 2016 for $28,000. I thought I could just accumulate $70,000 within a 5-year period, but was I mistaken? Do I have to file or make a correction on this?

Answer:
Interesting question! While this is a little outside our area of expertise, it sounds like you are referring to the strategy of “superfunding” a 529 college plan for your grandchild because this is not a strategy that could be used for an IRA. When you contribute to your grandchild’s 529 account, you are considered to be making a gift to the beneficiary in the eyes of the IRS. A single-filing taxpayer may gift $14,000 to another individual in 2016 without incurring the gift tax. However, 529 plans have a special rule that allows five years’ worth of gifts to be contributed at once to an account. This would allow you to contribute $70,000 at one time. Your best bet would be to meet with a knowledgeable financial or tax professional to see where you stand with what you have contributed so far and where to go from here.

Carol Shu

2.

Can you convert the traditional IRA annuity to a Roth IRA annuity if you have annuitized the traditional IRA annuity?

Answer:
It depends. While there is nothing in the rules for converting IRAs to Roth IRAs that prevents you from converting an IRA that has been annuitized, the annuity contract will have the final say. The contract may not allow the conversion.

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