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529 limit question

Home Estate Planning 529 limit question

  • Avatar eyes4success 
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    Status: Physician
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    Hi guys,

    this may not be the smartest question but wanted to make sure.

    My spouse and I have a 8 month old baby, we file taxes jointly, and have separate bank accounts. on 1/2017 I contributed $28,000 from my bank account. I’ve read that each parent can contribute $14,000 each per year. My question is should I have instead only contributed $14,000 from my checking account, and my wife contribute $14,000 from her checking account? Or does it not matter since we file taxes jointly? Also, we plan on making a single banking account together but we just haven’t gotten around to it yet. Thanks guys

    On the IRS.gov website it states

    Q. Are there contribution limits?

    A. Yes. Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.”

     

    For those curious below this is my 529 plan. Feel free to comment

    Vanguard S&P 500 Intitutional index 20%

    DFA US large Value fund 25%

    DFA US small value Fund 25%

    DFA International Value fund 20%

    Vanguard Emerging Markets Index 10%

     

    #56146 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
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    Joined: 01/14/2017

    Yeah, that’s going to look like it’s just coming from you if anyone cares to look.  There are others here who have more experience in this area, but I’d recommend getting a joint account with your wife, combining your funds, and when you file for 2017 fill out Form 709 on which your wife will sign consent to the joint gift.  It’s not like there are any tax implications here – this should be reconciled on Form 709.  But as things stand you open yourself up to a problem.

    #56151 Reply
    Avatar LizOB 
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    Status: Physician
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    Wait, was I supposed to fill out a form 709 for 529 contributions? We put in about $6k last year, no extra forms or anything on our taxes, other than listing it on our state return to get our state’s tax break. Absolutely nothing on the federal return. Am I missing something?

    #56154 Reply
    q-school q-school 
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    Wait, was I supposed to fill out a form 709 for 529 contributions? We put in about $6k last year, no extra forms or anything on our taxes, other than listing it on our state return to get our state’s tax break. Absolutely nothing on the federal return. Am I missing something?

    Click to expand…

    no

    form recommended for above poster because he wrote a check for 28k on behalf of both parents and they have individual checking accounts, so it may appear as if he personally exceeded the 14k threshold for individual giving.

     

    at 6k you are fine

     

     

    #56156 Reply
    jfoxcpacfp jfoxcpacfp 
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    My question is should I have instead only contributed $14,000 from my checking account, and my wife contribute $14,000 from her checking account? Or does it not matter since we file taxes jointly?

    You don’t have a problem. The IRS allows married couples to “join in” on a gift. We file these returns quite frequently. If one spouse makes a $28k gift from separately-owned property, the other spouse can check a box on the 709 stating that s/he agrees to join in the gift, effectively “splitting” the gift between them.

    Wait, was I supposed to fill out a form 709 for 529 contributions? We put in about $6k last year, no extra forms or anything on our taxes, other than listing it on our state return to get our state’s tax break. Absolutely nothing on the federal return. Am I missing something?

    Click to expand…

    You need to file a 709 only if you gift a minimum of $14k to a single individual in one year.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #56176 Reply
    ENT Doc ENT Doc 
    Participant
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    Joined: 01/14/2017
    My question is should I have instead only contributed $14,000 from my checking account, and my wife contribute $14,000 from her checking account? Or does it not matter since we file taxes jointly?

    You don’t have a problem. The IRS allows married couples to “join in” on a gift. We file these returns quite frequently. If one spouse makes a $28k gift from separately-owned property, the other spouse can check a box on the 709 stating that s/he agrees to join in the gift, effectively “splitting” the gift between them.

    Wait, was I supposed to fill out a form 709 for 529 contributions? We put in about $6k last year, no extra forms or anything on our taxes, other than listing it on our state return to get our state’s tax break. Absolutely nothing on the federal return. Am I missing something? 

    Click to expand…

    You need to file a 709 only if you gift a minimum of $14k to a single individual in one year.

    Click to expand…

    This last statement seems to imply that my wife and I need to fill out a 709 if we gift exactly $28k ($14k from each of us) to our child’s 529 account.  Curious why this would be the case since it meets the exclusion criteria just as much as giving $10 would (max of $14k per person per year).  Did you mean >$14k?  Thanks!

    #56216 Reply
    jfoxcpacfp jfoxcpacfp 
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    My question is should I have instead only contributed $14,000 from my checking account, and my wife contribute $14,000 from her checking account? Or does it not matter since we file taxes jointly?

    You don’t have a problem. The IRS allows married couples to “join in” on a gift. We file these returns quite frequently. If one spouse makes a $28k gift from separately-owned property, the other spouse can check a box on the 709 stating that s/he agrees to join in the gift, effectively “splitting” the gift between them.

    Wait, was I supposed to fill out a form 709 for 529 contributions? We put in about $6k last year, no extra forms or anything on our taxes, other than listing it on our state return to get our state’s tax break. Absolutely nothing on the federal return. Am I missing something?

    Click to expand…

    You need to file a 709 only if you gift a minimum of $14k to a single individual in one year.

    Click to expand…

    This last statement seems to imply that my wife and I need to fill out a 709 if we gift exactly $28k ($14k from each of us) to our child’s 529 account.  Curious why this would be the case since it meets the exclusion criteria just as much as giving $10 would (max of $14k per person per year).  Did you mean >$14k?  Thanks!

    Click to expand…

    Yeah, you’re technically right. That assumes you either skip Christmas, birthday, Hanukkah, Valentine’s, Easter or you’re awfully generous to a perfect stranger. I’ve just never run across a person who makes those kinds of gifts who also doesn’t give something else during the year. We don’t ask about the value of the Christmas gifts and all, though. We just file for the $14k.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #56226 Reply
    ENT Doc ENT Doc 
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    Ha.  Yeah, if the IRS wants to come knocking down my door to make sure I’m accounting for Play-Dough in the $14k then I guess they got me.  But you still file for the $14k?  Is that a requirement or are you just being extra cautious?

    #56288 Reply
    jfoxcpacfp jfoxcpacfp 
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    Ha.  Yeah, if the IRS wants to come knocking down my door to make sure I’m accounting for Play-Dough in the $14k then I guess they got me.  But you still file for the $14k?  Is that a requirement or are you just being extra cautious?

    Click to expand…

    I’m filing to start the statute of limitations.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #56342 Reply
    ENT Doc ENT Doc 
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    Interesting.  Is the SOL 3 years for gifting issues?

    #56349 Reply
    jfoxcpacfp jfoxcpacfp 
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    Interesting.  Is the SOL 3 years for gifting issues?

    Click to expand…

    Yes, actually 3 years from the return’s due date (including extensions) or the date that the return is actually filed.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #56358 Reply
    Liked by ENT Doc
    Avatar eyes4success 
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    thank you guys, you guys rock! Always appreciate your answers and feedback

    #56393 Reply
    Avatar spiritrider 
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    I have yet to run into this problem and we put in greater than 14k per year for each of our 3 children. That doesn’t mean it’s right but it just seems super easy to justify if IRS comes knocking.

    Click to expand…

    Just because they haven’t caught you doesn’t mean they can’t come knocking later (way later). If you didn’t catch the drift from Johanna’s post after yours. There is no SOL for failure to file Form 709.

    Explain exactly how it is super easy to justify a failure to file. The IRS is seldom amused. From the IRS Instructions for Form 709

    Penalties

    Late filing and late payment. Section 6651 imposes penalties for both late filing and late payment, unless there is reasonable cause for the delay.

    Reasonable cause determinations. If you receive a notice about penalties after you file Form 709, send an explanation and we will determine if you meet reasonable cause criteria. Do not attach an explanation when you file Form 709.

    Just so you know, the IRS is way more sympathetic to self-reporting then waiting until after you get a notice. I’ll let Johanna comment as the professional, but the few times I have helped people who were uninformed late file (and I mean really late), they never heard from the IRS. When it comes to penalties with the IRS, no news is good news.

    Why would you ever fail to report something with no immediate downside and risk getting bit in the butt later.

    #56406 Reply
    Liked by jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
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    I’ll let Johanna comment as the professional

    Click to expand…

    Hold on – you’re not a professional? I’m being serious.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #56416 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2487
    Joined: 08/01/2016

    What we did was front load her 529 for $100K a year after my daughter was born, and spread that over 5 years ( the limits were lower than 14K at that time).

    Now we just send a check for $28K each year to her taxable Vanguard UTMA account. My CPA does not file the form 709 now but asked us to keep photocopies of paper checks if we used them, or the Vanguard statement where the online transfer from our bank account to her account occurred. Even though the lifetime gift amount is around $5.5M we do not know when that can suddenly be lowered and want to make sure that our $28K annual gifts do not impact that.

    #56426 Reply

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