Mechanics of paying from 529 account to college

[Anonymous]

We are in Virginia and money is mostly in taxable account for paying to college. I have about $20k in 529.

I understand that we can first put $4000 per account to get a deduction for each year. Can we take out the money say within a week? Thinking I would put $4k in like 10 accounts ($38k for both parents total to keep it under gift tax limit).

Also if fees are $40k, can you pay from multiple accounts 529 and taxable to the university? Like $4110 from account 1, $4291 from account 2, etc until $35k is reached?

[Anonymous]

Anonymous wrote:We are in Virginia and money is mostly in taxable account for paying to college. I have about $20k in 529.

I understand that we can first put $4000 per account to get a deduction for each year. Can we take out the money say within a week? Thinking I would put $4k in like 10 accounts ($38k for both parents total to keep it under gift tax limit).

Also if fees are $40k, can you pay from multiple accounts 529 and taxable to the university? Like $4110 from account 1, $4291 from account 2, etc until $35k is reached?

I am fairly certain you get the state tax deduction on the total amount you put into any 529s each year…not that you can deduct $40k by spreading it over 10 accounts.

529 contributions also don’t count against gifts since most are still controlled by the parent with the kid the beneficiary.

[Anonymous]

Don’t ask us. You have a 529 plan so you must have a financial advisor. It’s time to send a message and set up a meeting to answer your questions with them and possibly a second meeting with an accountant.

[Anonymous]

If you were allowed to start 10 accounts with a $4000 deduction, everyone would do it. There can be one account owned by you (the parents) and one owned by your brother for the benefit of your child and he can get the deduction, but you are only allowed to take one credit for accounts you own.

You can deposit and withdrawal for school right away, no minimum/no maximum time needed in the account.

Any withdrawal has to be in the same calendar year as the expense and has to be for a qualified school expense or its penalized.

Schools accept payments from any account, they just want the money.

[Anonymous]

OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

[Anonymous]

Anonymous wrote:OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

So why are you here asking your questions if you are convinced you are right?

But sure…open 10 529 accounts.

[Anonymous]

Anonymous wrote:OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

Cole, you stupid

[Anonymous]

Anonymous wrote:OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

Oh okay never mind everyone, this is just a troll.

[Anonymous]

Not the OP, but I am a CPA.

The truth is that Virginia is stupid and left a loophole in the tax law because it worded the language of the 529 deduction poorly.

It is a gray area and I would consult your tax advisor.

But the actual statute allows for a $4,000 per college savings "account," but then doesn't define what "account" means.

There is basically no guidance on it from the VA Dept of Revenue.

In the inVest 529 plan, you create an overall online account under each individual owner. Then for each fund you buy, they create a separate account and give each fund an account number.

So is an "account" the overall account for the individual, or each account for each fund purchased.

People have been deducting more than $4,000 per person if they have own more than one account. I don't know a single person that has gotten a notice or letter from the VA Dept. of Revenue for doing this.

But the VA Dept. of Revenue have provided various reports where they make passing references to the $4,000 deduction and say it is $4,000 per person.

My suspicion is that they know they screwed up with the statute, left a loophole, but very few people are deducting more than $4,000 per person, so they aren't doing anything about it.

They could issue a regulatory interpretation or rule, but it could be challenged in litigation because the statute would supersede those interpretations.

There is no litigation where VA disallowed those deductions and then a person challenged it in court.

So no one really knows. My guess is people will probably get away with it if it is not a huge amount doing it, but if it makes an impact or gets a lot of publicity as a loophole then the VA Dept of Revenue or the legislature may move to correct it.

Logically it makes no sense that the inVest could be tens thousands of dollars by spreading it to different funds while the Prepaid program would be limited to $4,000.

I wouldn't do it, but if you like playing the audit lottery and are aggressive, you can roll the dice.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

So why are you here asking your questions if you are convinced you are right?

But sure…open 10 529 accounts.

OP here. Not a troll.

I was just as incredulous as you were when I first heard about it. I understand your reaction.

If anyone actually care to check, you would find that it is true. As insane as it sounds, it is true.

My questions are more nitty gritty of college payment mechanics. Can you pay a little bit from many accounts. How does that work, etc.

[Anonymous]

Anonymous wrote:If you were allowed to start 10 accounts with a $4000 deduction, everyone would do it. There can be one account owned by you (the parents) and one owned by your brother for the benefit of your child and he can get the deduction, but you are only allowed to take one credit for accounts you own.

You can deposit and withdrawal for school right away, no minimum/no maximum time needed in the account.

Any withdrawal has to be in the same calendar year as the expense and has to be for a qualified school expense or its penalized.

Schools accept payments from any account, they just want the money.

You have no idea what you are talking about.

OP is exactly correct for Virginia, but you can only deduct 4,000 per year with unlimited carryover into future years.

[Anonymous]

The loophole is there, and yes it works and is valid. As many have been using it for years, they aren't going to simply start enforcing a legally undefensible position now. They'd have to fix the law, and then everyone gets in line after. Until they do, everything that OP said is true.

Yes, you can have 10 accounts and deduct $40k from your VA taxes.
Yes, you can pay tuiition from multiple accounts. They don't care how many accounts, as long as they get it paid in full. And you do it all online of course, so its super easy, and nobody really there to watch what you are doing or make snarky comments.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here.

OMG you guys are even more clueless than I am. I do not have a FA, but everything I said is 100% accurate.

So why are you here asking your questions if you are convinced you are right?

But sure…open 10 529 accounts.

OP here. Not a troll.

I was just as incredulous as you were when I first heard about it. I understand your reaction.

If anyone actually care to check, you would find that it is true. As insane as it sounds, it is true.

My questions are more nitty gritty of college payment mechanics. Can you pay a little bit from many accounts. How does that work, etc.

The colleges don't care, you just tell Va529 to what account to send the money.

And you are absolutely correct about Virginia. The other posters have no idea what they are talking about.

[Anonymous]

Anonymous wrote:Not the OP, but I am a CPA.

The truth is that Virginia is stupid and left a loophole in the tax law because it worded the language of the 529 deduction poorly.

It is a gray area and I would consult your tax advisor.

But the actual statute allows for a $4,000 per college savings "account," but then doesn't define what "account" means.

There is basically no guidance on it from the VA Dept of Revenue.

In the inVest 529 plan, you create an overall online account under each individual owner. Then for each fund you buy, they create a separate account and give each fund an account number.

So is an "account" the overall account for the individual, or each account for each fund purchased.

People have been deducting more than $4,000 per person if they have own more than one account. I don't know a single person that has gotten a notice or letter from the VA Dept. of Revenue for doing this.

But the VA Dept. of Revenue have provided various reports where they make passing references to the $4,000 deduction and say it is $4,000 per person.

My suspicion is that they know they screwed up with the statute, left a loophole, but very few people are deducting more than $4,000 per person, so they aren't doing anything about it.

They could issue a regulatory interpretation or rule, but it could be challenged in litigation because the statute would supersede those interpretations.

There is no litigation where VA disallowed those deductions and then a person challenged it in court.

So no one really knows. My guess is people will probably get away with it if it is not a huge amount doing it, but if it makes an impact or gets a lot of publicity as a loophole then the VA Dept of Revenue or the legislature may move to correct it.

Logically it makes no sense that the inVest could be tens thousands of dollars by spreading it to different funds while the Prepaid program would be limited to $4,000.

I wouldn't do it, but if you like playing the audit lottery and are aggressive, you can roll the dice.

It's been this way for over 20 years. It's fine.

[Anonymous]

Anonymous wrote:Not the OP, but I am a CPA.

The truth is that Virginia is stupid and left a loophole in the tax law because it worded the language of the 529 deduction poorly.

It is a gray area and I would consult your tax advisor.

But the actual statute allows for a $4,000 per college savings "account," but then doesn't define what "account" means.

There is basically no guidance on it from the VA Dept of Revenue.

In the inVest 529 plan, you create an overall online account under each individual owner. Then for each fund you buy, they create a separate account and give each fund an account number.

So is an "account" the overall account for the individual, or each account for each fund purchased.

People have been deducting more than $4,000 per person if they have own more than one account. I don't know a single person that has gotten a notice or letter from the VA Dept. of Revenue for doing this.

But the VA Dept. of Revenue have provided various reports where they make passing references to the $4,000 deduction and say it is $4,000 per person.

My suspicion is that they know they screwed up with the statute, left a loophole, but very few people are deducting more than $4,000 per person, so they aren't doing anything about it.

They could issue a regulatory interpretation or rule, but it could be challenged in litigation because the statute would supersede those interpretations.

There is no litigation where VA disallowed those deductions and then a person challenged it in court.

So no one really knows. My guess is people will probably get away with it if it is not a huge amount doing it, but if it makes an impact or gets a lot of publicity as a loophole then the VA Dept of Revenue or the legislature may move to correct it.

Logically it makes no sense that the inVest could be tens thousands of dollars by spreading it to different funds while the Prepaid program would be limited to $4,000.

I wouldn't do it, but if you like playing the audit lottery and are aggressive, you can roll the dice.

+1 I know of a friend who is an attorney who has taken advantage of this loophole. I live in MD and the law here is much more clear so multiple accounts don’t increase state tax deduction.